The semiconductor industry is facing potential instability as AI spending from major tech companies shows signs of slowing down.
Doug Lefever, CEO of Advantest, a leading provider of chip-testing equipment, has raised concerns that a downturn in data centre investments could have significant repercussions for chipmakers. However, he also suggests that the rise of AI-enabled smartphones could provide a much-needed boost to the sector.
Key Takeaways
Slower AI spending could lead to a significant downturn for chipmakers, according to Advantest's CEO.
Major tech firms have invested heavily in AI infrastructure, with an estimated $222 billion spent on AI chips and data centres by the end of the year.
Concerns about overspending on AI have emerged, with industry leaders warning of potential market corrections.
AI smartphones may offer a lifeline for the semiconductor industry if data centre spending declines.
The Current Landscape of AI Spending
The rapid growth of artificial intelligence has led to substantial investments from tech giants like Microsoft, Amazon, and Meta Platforms. These companies have collectively poured hundreds of billions into AI infrastructure, which has created both excitement and apprehension in the market. By the end of 2023, hyperscalers had spent around $222 billion on AI-related technologies.
Despite the optimistic projections, some analysts are beginning to question the sustainability of this spending spree. Salesforce CEO Marc Benioff has cautioned against overspending, describing the current trend as a "race to the bottom." He emphasised the need for caution in investment strategies, particularly as the hype surrounding AI continues to grow.
Potential Consequences for Chipmakers
Lefever warns that any slowdown in data centre buildouts could have immediate and severe effects on the semiconductor supply chain. The concentration of hyperscalers in the market means that even a brief downturn could lead to significant disruptions. He stated, "Any slowdown in the data centre buildout is going to have big reverberations in the supply chain."
While he refrains from using the term "bubble," Lefever acknowledges that the industry is likely to experience cycles, and the next downturn could be particularly harsh. He noted, "When that next cycle comes, it could be pretty vicious."
The Promise of AI Smartphones
On a more optimistic note, Lefever believes that AI smartphones could help sustain the semiconductor industry if data centre spending declines. He remarked, "Everyone is holding their breath, waiting for the killer app with the AI handsets. If that happens and people start replacing their phones, it's going to be crazy."
Wall Street analysts share this optimism, with some already adjusting their price targets for major tech companies based on expectations surrounding AI smartphones. For instance, Wedbush Securities recently raised its target for Apple to $325, citing high hopes for Apple Intelligence, an AI software integrated into new iPhone models.
Conclusion
As the semiconductor industry navigates the complexities of AI spending, the potential for a downturn looms large. While the current enthusiasm for AI technologies has driven significant investments, the sustainability of this trend remains uncertain. However, the emergence of AI smartphones may provide a crucial buffer for chipmakers, ensuring that the industry remains resilient in the face of potential challenges ahead.
Sources
Slower AI spending could ignite a 'vicious' downturn for chipmakers, Nvidia supplier says, markets.businessinsider.com.
Slower AI spending could ignite a 'vicious' downturn for chipmakers, Nvidia supplier says, MSN.
AI phones could sustain chip sector if data centre spending slows, says Nvidia supplier, Financial Times.
