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Around the world, businesses are shovelling money into hardware that can support artificial intelligence. A blowout earnings result from US chipmaker Nvidia added to the frenzy this week. The global tech rally has raised share prices in European semiconductor equipment maker ASML, German chipmaker Infineon and BE Semiconductor (Besi).
The latter is a market leader in “hybrid bonding”, assembling various materials in a semiconductor, and is now worth €12.5bn. That is about one-twentieth of the $277bn that Nvidia added to its market value in a single day this week. Today, Besi would rank in the top half of FTSE 100 constituents by size. The Netherlands-based assembly equipment maker posted its own bumper set of results the day after Nvidia’s which added to investor interest.
Besi has all the characteristics that growth investors adore. It has a niche technology critical to the next generation of chips, while controlling nearly the total market share for this. That explains why its shares have more than doubled in the past year, putting Besi on one of the richest valuations within the European tech sector.
Besi’s technology addresses how to extract more power from chips as physical limitations restrict transistor numbers. One way around this is to use “chaplets”, or assemblies of different chip parts that together make for a more efficient whole. Hybrid bonding is the method that sticks them together.
About half of Besi’s €166mn of orders in the fourth quarter were for new hybrid bonding machines as customers boost their own capacity to meet the AI boom. This roughly doubled the company’s order book compared with the previous year.
Hybrid bonding last year brought in €36mn in revenues, less than a tenth of group sales. But this bonding business should grow rapidly. Investor optimism has put Besi on a hefty valuation of 15 times forward sales, the same as Nvidia and higher than ASML’s 12 times multiple. Besi shares have outperformed the latter by 65 per cent over the past year.
Investors think Besi’s hybrid technology could make it as important to the chip supply chain as ASML, according to Barclays. Its hybrid bonding revenues could jump to €476mn by 2026, on Visible Alpha’s collection of analyst estimates, around a third of group sales.
Even so, given the rest of Besi’s equipment sales have yet to truly burst ahead, the bet on Besi depends on hybrid bonding equipment. That suggests that its valuation premium is optimistic, regardless of the impending upturn in the chip cycle and the sentiment boost from the AI narrative.
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