The right choice is essential to ride the wave of development!

In recent years, the evolution of generative artificial intelligence (AIGC), from its early inception with innovations like ChatGPT to the current advancements in technologies such as Byte's Doubao, has captured the attention of manyAs the functionalities of AIGC become increasingly well-known and accessible, there arises a compounding demand for computer processing power and efficient data handling.

To effectively train AIGC models, enhancing data transmission speed and bandwidth in server environments has become paramountAmong various solutions employed in servers, a predominant approach has been the development of "copper interconnection systems," primarily utilizing Direct Attach Copper (DAC) cables.

DAC technology was initially pioneered by Nvidia and has quickly gained traction in the tech sector due to its advantages of low cost, low power consumption, and low latencyNotably, leading tech giants like Google, Microsoft, and Amazon have noticeably increased their adoption of DAC technology, leading to a significant upsurge in the demand for copper cables.

As the market for copper cables expands, projections indicate that sales could more than double in the next five years, potentially reaching approximately $2.8 billion by 2028. This rapid growth raises the question of which companies are poised to benefit from this rising tide.

Within the copper cable supply chain, one player that stands out is Woori Nuclear MaterialsAs an indirect supplier to Nvidia, Woori produces bare wire products that Amphenol further processes into copper cables utilized in Nvidia's server productsHowever, competition remains fierce, with established overseas competitors like Amphenol, Tyco, and Molex at the forefront and local companies like Shenyu chasing closely behind.

At the upstream of the supply chain, Jingda Stock has positioned itself as a significant producer of silver-plated copper materials

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As a supplier to Woori, Jingda benefits from the increasing demand for copper cablesTo provide context, silver-plated copper serves as a core material for cables, known for its low resistance, strong conductivity, and excellent shielding performance.

From 2017 to 2022, the global market for silver-plated conductors surged from around $3 billion to approximately $5 billionThis increase is tied closely to the accelerating development of AIGC, suggesting future demand for silver-plated copper may continually riseExperts estimate that under conditions with 100,000 racks and a weight of 100 kg per rack, the market for silver-plated copper used in servers could reach as high as $3.5 billion, indicating substantial growth potential.

In this context, Hengfeng TED, a subsidiary of Jingda, emerges as a leading domestic manufacturer of silver-plated copper conductorsHengfeng has established formidable barriers in niche markets that require silver-plated conductors with diameters smaller than 0.06mm, showcasing a competitive advantage over rivals like Youchun Electric Wire and Zhenxiong Copper.

The company's impressive capabilities have attracted numerous clients, including Tyco Electronics, Amphenol Times Microwave, LeTong Electric Wire (a subsidiary of Woori Nuclear Materials), and Luxshare PrecisionThis surge in demand has led to significant growth for Hengfeng TED.

In the first half of 2024, Hengfeng TED contributed roughly $8.5 million in revenue to Jingda, reflecting a 42.3% year-on-year increaseIts revenue from silver-plated copper conductors alone was $4 million, exhibiting a remarkable 63.6% growthAdditionally, in 2023, Hengfeng TED's shipments of high-speed silver-plated copper wire reached 610 tons, prompting the company to ramp up production capacity to meet downstream market needs.

In October 2024, the company announced plans to construct a production base for high-speed silver-plated conductor products with an annual capacity of 500 tons

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Notably, the decision for Jingda to invest in Hengfeng TED has proven to be astute.

The production of silver-plated copper involves complex technical barriers (such as plating, wire drawing, and subsequent processing) and stringent certification requirements, typically taking over two yearsOpting for in-house production could cause the company to miss out on industry opportunities arising from the growing demand for AIGC technologiesAs of 2023, the contribution of the special conductor business (including silver-plated copper) was merely 4.3% of the overall company operations, but as demand scales up, its positive impact on overall earnings is anticipated to grow.

Moreover, special conductors currently command a gross profit margin of 13.4%, exceeding the 6% margin associated with the primary product, enameled wireTherefore, as the proportion of higher margin products increases, it would positively influence the company's overall gross margin.

In addition, pricing in the silver-plated copper industry typically follows a "copper price + processing fee" modelWith increasing demand, both copper prices and processing fees have shown an upward trend since 2024, leading to an expected 7.5% increase in the average selling price of the company’s products, further enhancing the prospects for higher profit margins.

It's also worth mentioning that besides its ventures in high-speed copper cables, Jingda has taken an equity stake of 18.3% in Shanghai Superconductors, marking its entry into the superconducting materials marketThis investment into Shanghai Superconductors is regarded as particularly successful, as the company is a key supplier of second-generation high-temperature superconductor materials globally, with its performance metrics ranking in the top 20% worldwide and surpassing comparable domestic and international products.

As technology advances, the future applications for superconductors in sectors like metal induction heating equipment and power cables are expected to expand, positioning both Shanghai Superconductors and its stakeholder, Jingda, to benefit from this growth.

However, for Jingda Stock, while Hengfeng TED and Shanghai Superconductors serve important roles in their investment portfolio, achieving long-term sustainability will depend on the stability of their core business operations

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