AI Expansion May Cause World Chip Crunch by 2026

SeniorTechInfo
3 Min Read

The Looming Global Chip Shortage: AI’s Demand Impact

A new report has predicted a potential global chip shortage due to skyrocketing demand for AI-related products and services that suppliers may struggle to meet. According to consultancy Bain and Company, AI workloads could grow by 25% to 35% annually up to the year 2027, with a 20% increase in demand likely to upset the equilibrium and lead to a shortage.

The authors of the Global Technology Report 2024 highlight the vulnerability in the supply chain caused by the AI explosion across various large end markets.

With the growing need for AI infrastructure and AI-enabled products, the market for AI software and hardware is projected to experience annual growth rates between 40% and 55% over the next three years, resulting in a total AI market prediction of $780 billion to $990 billion by 2027.

The Supply Spider’s Web and the Pressure It’s Under

The supply chain for AI components must scale up to meet rising demand, but the complex nature of the chain, likened to a spider’s web, poses challenges. Fabs and infrastructure for chip production have lead times of three-and-a-half to over five years, creating bottlenecks along the supply chain.

Bleeding-edge fabs are crucial links, with a need to raise output by 25% to 35% to keep up with the growth in sales of PCs and smartphones. Constructing more fabs entails significant costs, with an estimated $40 billion to $75 billion required.

The demand for on-device AI functionality in devices like smartphones and PCs is on the rise, further straining the supply chain for upstream components.

The Last Global Chip Shortage

Chipmakers have seen record revenues, but supply chain issues persist. The industry experienced a global chip shortage due to the COVID-19 pandemic, which continued to impact industries like consumer electronics and AI.

Geopolitical tensions, trade restrictions, and efforts by countries to enhance domestic semiconductor production could exacerbate the chip shortage.

Desire for AI Sovereignty Could Exacerbate Chip Shortage

Export controls and efforts to enhance domestic semiconductor production are driven by a desire for data sovereignty and increased data security. Countries like the U.S. and the EU are investing heavily in semiconductor production to reduce reliance on other nations.

Recommendations for companies to withstand a chip shortage include tracking the entire AI supply chain, signing long-term purchase agreements, designing products with industry-standard semiconductors, and diversifying suppliers to mitigate geopolitical uncertainties.

Despite the challenges, proactive measures can help companies navigate the impending chip shortage and ensure resilience in an increasingly AI-driven world.

Share This Article
Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *