When discussing AI data centers and servers, there are two components that are tiny yet critically important to the system: GaN and SiC. I’ll explain what these power chips do and why companies are switching to GaN and SiC chips, even though Si (Silicon) is cheaper.

First, let’s look at what they are. SiC enables the rapid transmission of the high voltage and current entering servers without generating excessive heat. Standard grid electricity undergoes processing three or four times before it actually reaches the GPU. A single Nvidia Blackwell B200 ($NVDA) sells for $50,000, while the SiC transistor that powers it—and protects it from high current—costs just $20. GaN is a power chip that switches electricity on and off extremely quickly and with minimal loss. Because these chips are tiny yet powerful and located close to the GPU card in servers, they save space and deliver 98.5% efficiency. They also generate less heat than previous generations, allowing both CPUs and GPUs to perform better; this also slightly reduces cooling costs. I know this is a somewhat dry topic, but partnerships two companies have formed with Nvidia make it worth tracking developments in this field.

Normally, I’ve been following Navitas ($NVTS) in this space. However, there is something that piqued my interest: in March, Infineon ($IFX) unveiled a reference board (HV IBC) for Nvidia. They announced that it boasts an efficiency of over 98%. While that is standard enough in itself, the key detail is that they designed it specifically for Nvidia’s 800V architecture. Ultimately, the demand for Nvidia indirectly benefits Infineon. If you are a Navitas investor—or are considering becoming one—you really need to keep a close eye on Infineon’s progress in this area.

While Infineon is strong in the GaN and SiC sectors, its primary revenue source remains the automotive industry. Yes, its client list includes major brands like Tesla, BMW, and BYD, but fluctuations in this sector unfortunately impact the balance sheet directly. Management has two promising avenues ahead: robotics and AI. Infineon boasts a vast product portfolio and operates 14 manufacturing facilities. If they make significant strides in robotics, they could reach a whole new level; their product portfolio—comprising sensors, chips, and more—is perfectly suited for this. Earlier this year, they announced new collaborations with Nvidia in the robotics space. If I were in management, I would place greater emphasis on robotics to mitigate the impact of automotive sector volatility. The robotics market is still in its infancy with no clear winner, and I believe Infineon has the potential to succeed in this arena.

Infineon also has two other interesting products. The first consists of radiation-hardened Gallium Nitride (GaN) transistors designed for the electronic systems of the Orion capsule used in NASA’s Artemis II program. As investments in the space sector grow, there is significant potential to sell these components to various space companies, most notably SpaceX. Although there is no official announcement yet, I believe they will eventually strike a deal with SpaceX. The second product involves quantum security chips. We are gradually moving toward the quantum era, which implies future security vulnerabilities; robots, data centers, and automobiles all represent potential markets for Infineon’s quantum security chips. This is the area that excites me the most; most of us have yet to fully grasp the impact quantum technology will have on our lives once it becomes mainstream. I anticipate that as the US provides incentives for the quantum sector, the industry will grow and evolve more rapidly, thereby driving up demand for these security chips.

The market rewarded this performance, particularly with a 137% surge between April and June; the stock climbed from €40 to $87. Like other semiconductor stocks, it is currently trading nearly 30% below its peak, sitting at the €56 level. Despite this, it has delivered a 76% return over the past year and a 47% return year-to-date—an impressive performance for Infineon, a company projected to grow by over 21% by 2027. I am personally tracking it; I believe that if it outperforms its rivals in Nvidia's 800V architecture, the stock could reach much higher levels. In my view, it is one of the key companies to watch in this sector. Of course, Infineon isn't the only one that has pulled back; competitors like $ON, $NPXI, and $NVTS are also trading well below their highs.