AI Chip Demand

Key Takeaway:

The semiconductor industry is on the brink of a transformative era, driven by the surging demand for generative AI chips, vertical integration of silicon, and GPU shortages. As companies navigate this complex landscape, balancing innovation, sustainability, and economic viability, the power of semiconductors will shape the future of technology and drive digital transformation across industries in 2024 and beyond.

Trend Type: Technology

Sub-trends: Semiconductors, GenAI Chip demand, Vertical Integration Into Silicon, GPU shortage forces companies to be smarter

May, 2024 • Less than 4 min read

The semiconductor industry, pivotal to digital transformation across the globe, stands at a transformative juncture. Semiconductors are recognized as the most traded goods in the world, surpassing even crude oil in economic significance. As the industry advances, technological breakthroughs are pushing beyond traditional boundaries with chips now reaching sizes as small as 2nm and transistors only a few atoms in size.
By 2024, the landscape of the semiconductor market is expected to dramatically evolve, driven by these technological breakthroughs that span from smartphones to data centers. Innovations such as 3D chip stacking and new materials are central to this evolution, enabling increased computing power despite the challenges of further miniaturization. The emergence of chiplets and advancements in lithography are also crucial, reflecting a digital transformation across various industries.
Demand
In the realm of AI, the demand for generative AI chips is rapidly expanding. Deloitte predicts that by 2024, the market for these specialized chips will exceed $50 billion, representing two-thirds of all AI chip sales. This surge is part of a broader trend where AI-enabling chips could represent half of the value of all semiconductors sold by 2027, with total AI chip sales in 2024 projected to account for 11% of the predicted global chip market of $576 billion. These figures highlight the increasing integration of AI technologies in various sectors and the critical role of semiconductors in enabling these advancements.
Shortage & Partnerships
However, the semiconductor industry faces potential setbacks similar to past experiences in other sectors, such as the crypto mining chip bubble seen in 2018 and 2021. There are concerns that the generative AI chip market might also experience a downturn by 2025 if enterprise AI use cases do not materialize as anticipated. Amidst these challenges, GPU shortages have become a significant bottleneck, particularly affecting large tech firms like Meta, OpenAI, and Tesla, who are major consumers of these chips. The limited availability of GPUs is forcing companies to be more strategic in their approach, optimizing AI models to minimize compute requirements. This scarcity has also fostered critical partnerships between technology providers like Dell and Hewlett Packard Enterprise and chipmakers such as Intel and NVIDIA. These partnerships focus on sustaining robust supply chains and ensuring the delivery of smaller-scale enterprise AI applications.
Vertical Integration
The strategic movement towards vertical integration is another defining trend. Companies are increasingly taking control of the entire AI development process, from the hardware to the application of large language models (LLMs). This comprehensive approach is exemplified by firms strategically enhancing their capabilities to include everything from chip fabrication to cloud services, aiming to dominate the high-value segments of AI-enhanced semiconductor hardware.
Furthermore, the shift towards vertical integration is exemplified by hyperscalers who, driven by geopolitical influences and the vast potential of AI, are integrating silicon chips into their strategies through acquisitions and in-house innovation. By 2024, according to Forrester, 80% of these firms are expected to have integrated prompt engineering into their operations to enhance AI model effectiveness, reflecting a deep commitment to refining AI technologies.

Use Cases

The Amazing Rise of NVIDIA

Vertical Integration Into Silicon: Nvidia’s stock has skyrocketed over 500% in just 16 months. But what’s driving the meteoric rise of this tech giant, and are there storm clouds on the horizon? The meteoric rise of NVIDIA’s stock price is a clear signal of this sub-trend.

INTEL's Falcon Shores Chip

Cybersecurity: Netflix engineers developed Chaos Monkey, a novel way to ensure resiliency is being addressed. The software randomly terminates servers in production to ensure that en-gineers are architecting code in a way that would survive server failure.

Use Cases

The Amazing Rise of NVIDIA

Vertical Integration Into Silicon:

INTEL's Falcon Shores Chip

Cybersecurity: Netflix engineers developed

Sub-Trend Sources
Semiconductors: Capgemini
GenAI Chip demand: Delloite TMT Prediction, Forrester Predictions, Trend Hunter
Vertical Integration Into Silicon: BCG The Next Wave, Forrester Predictions
GPU shortage forces companies to be smarter: CBInsights Emerging Tech Trends, Deloitte Tech Trends

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