Investors are shifting their focus from Revenue Total Addressable Markets (TAMs) to Profit TAMs in various artificial intelligence (AI) hardware categories.
JPMorgan analyst Samik Chatterjee finds that the potential for AI-led upgrades in Apple Inc's (NASDAQ AAPL) hardware remains underappreciated. The Cupertino, California-based company has strong position in the higher-end smartphone market, coupled with a favorable Profit TAM, making it the best pick among Edge AI companies.
Smaller revenue TAMs in AI networking (switching and optics) and AI storage face fewer competitors than the larger AI server market, which is marked by lower margins and fragmented market share.
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Top picks due to robust IP and strategic positioning in high-margin segments:
- Arista Networks Inc (NYSE:ANET): With AI Switching TAM projected at $12 billion by 2028 and gross margins around 60%, Arista stands out. The company's robust IP in software stacks and high job completion rates make it a leader in this high-margin market. The AI Switching Profit TAM is estimated at $7 billion, with ample growth opportunities outside the White Box market.
- Coherent Corp (NYSE:COHR): Dominating the AI High-Speed Optics space, Coherent benefits from a projected $13 billion TAM by 2029 and gross margins of 40%-45%. The combination of design and manufacturing expertise positions Coherent as a leader, capturing a significant portion of the $5 billion+ Profit TAM.
- Dell Technologies Inc (NYSE:DELL): Beyond its AI Server offerings, Dell's portfolio extends into AI Storage and AI PCs, enhancing its Profit TAM opportunities. Despite intense competition and lower margins in the AI Server market, Chatterjee points out that Dell's investment in Enterprise Server capabilities and services differentiates it from competitors.
- Super Micro Computer Inc (NASDAQ:SMCI): Known for customization that improves performance, Super Micro achieves better margins (around 13%+) compared to other branded companies. Its strong position in the competitive AI Server market underscores its profitability and growth potential.
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