AI Chips: Balancing Future Demand and Supply

Current Demand Trends for AI Chips

Current demand for AI chips is robust, with companies like Microsoft and Amazon experiencing higher-than-capacity demand and significant growth in AI infrastructure. Intel and AMD also report improving demand signals and an insatiable need for high-performance AI, indicating strong and sustained demand trends.

"Currently, near-term AI demand is a bit higher than our available capacity." --- (MSFT, earning call, 2024/Q3)

"which is adding to the number of companies moving their AI focus to AWS. We expect the combination of AWS' reaccelerating growth and high demand for gen AI to meaningfully increase year-over-year capital expenditures in 2024, which given the way the AWS business model works is a positive sign of the future growth." --- (AMZN, earning call, 2024/Q1)

"IDC indicates the overall PC market is now expanding. And as stated earlier, as standards emerge and applications begin to take advantage of new AI-embedded capabilities, we see demand signals improving, especially in second half of the year helped by a likely corporate refresh." --- (INTC, earning call, 2024/Q1)

"Looking further ahead, AI represents an unprecedented opportunity for AMD. While there has been significant growth in AI infrastructure build-outs, we are still in the very early stages of what we believe is going to be a period of sustained growth, driven by an insatiable demand for both high-performance AI and general purpose compute." --- (AMD, earning call, 2024/Q1)

"We continue to identify and evaluate opportunities to expand our datacenter locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services." --- (MSFT, sec filing, 2024/Q3)

Industry-Specific Demand Drivers for AI Chips

AI chip demand is driven by industry-specific needs: Meta leverages AI for content recommendations and ad performance, Microsoft partners to drive AI adoption across sectors, Amazon sees growth in AI workloads across industries, Tesla focuses on AI for autonomous driving, and Apple advances AI in consumer electronics.

"With that said, we expect to see good opportunities to continue growing engagement across our products driven by the investments we made in AI based content recommendations, our ongoing video work and we also expect that we will continue to drive ads performance gains and continue to make our ads sort of more effective and deliver increasing value to advertisers." --- (META, earning call, 2024/Q1)

"By combining Cognizant's industry expertise with Microsoft's Copilot capabilities – including Copilot for Microsoft 365 and GitHub Copilot – we will help drive AI adoption and innovation for millions of users across its network. Driving industry-specific transformation is a key goal of partnership, focused on helping businesses reimagine operations in sectors that have not seen significant disruption in decades." --- (MSFT, press release, 2024/04/22)

"During the first quarter, we saw growth in both generative AI and non-generative AI workloads across a diverse group of customers and across industries as companies are shifting their focus towards driving innovation and bringing new workloads to the cloud." --- (AMZN, earning call, 2024/Q1)

"We continue to ramp production and build and optimize our manufacturing capacity, expand our operations while focusing on further cost reductions and operational efficiencies to enable increased deliveries and deployments of our products, and invest in research and development to accelerate our AI, software, and fleet-based profits for further revenue growth." --- (TSLA, sec filing, 2024/Q1)

"Compared to M2, M4 can deliver the same performance using just half the power, and compared to the latest PC chip in a thin and light laptop, M4 can deliver the same performance using just a quarter of the power. A new advanced Media Engine includes support for AV1 decode, providing more power-efficient playback of high-resolution video experiences from streaming services. Outrageously Powerful Device for AI" --- (AAPL, press release, 2024/05/07)

Supply Chain Challenges Impacting AI Chip Production

Innovative manufacturing processes, supplier consolidation risks, migration to leading-edge technology, overcoming technical challenges, and ensuring supply chain flexibility and redundancy are key strategies being employed to address supply chain challenges impacting AI chip production.

"Addressing these challenges, SEMCO's innovative manufacturing processes mitigate issues like warpage to ensure high yields during chip mounting." --- (AMD, press release, 2024/07/22)

"Future consolidation of foundry suppliers could also increase our vulnerability to sole- or limited-source arrangements and reduce our suppliers’ willingness to negotiate pricing, which could negatively impact our ability to achieve cost reductions, increase our manufacturing costs and limit the amount of capacity available to us." --- (QCOM, sec filing, 2024/Q2)

"We're hearing that AI chip makers are looking to migrate more aggressively from N minus 1 to the leading-edge, particularly due to backside power because they're trying to lower their power budgets going forward." --- (TSM, earning call, 2024/Q2)

"And these values are not just there by accident because ASML with its very special specific nature lives from challenging, challenging what is possible and taking on the challenge of revolutionizing the way that our customers have been able to increase the number of or their effectiveness and the capacity of the chips that they have been producing and change the digital industry. So the technical challenges have been enormous and you've been forced to challenge every obstacle and limitation that others saw in the world to be able to do that." --- (ASML, event transcript, 2024/04/24)

"We will continue pursuing flexibility and redundancy in our supply chain, evaluating and quantifying multiple suppliers for components and processes that we use to build our products." --- (NVDA, event transcript, 2024/06/26)

Technological Advancements in AI Chip Design

AI chip design is evolving to support diverse models and applications, as highlighted by Nvidia's focus on versatile chips. Intel and AMD emphasize advancements in high-performance computing and AI renderings, while Apple's new iPad Pro showcases powerful AI capabilities. Nvidia's advanced factories further underscore the technological progress in AI chip production.

"And so each one of these advances in generative AI and the advancement of AI really begs for not having a widget that's designed for one model." --- (NVDA, earning call, 2025/Q1)

"#HPC and #AI advancements that accelerate the most demanding scientific workloads 💡 Join us at #ISC24 booth D20 where we’ll be demonstrating the impact of our technology." --- (INTC, Twitter, 2024/05/06)

"Together, I think we have driven incredible innovations across PCs, mobile gaming, servers, tablets, edge computing and for example, our ThinkStation P620 was the 1st Thread Repair Pro workstation to deliver unprecedented performance and flexibility to power AI renderings and workflows. Beyond hardware, the Lenovo AI Engine Plus software use machine learning in our Legion gaming laptops, integrates with AMD Ryzen Processor to dynamically adjust settings and tailor for epic gaming experiences at the highest performance." --- (AMD, event transcript, 2024/06/03)

"Featuring a new thin and light design, breakthrough Ultra Retina XDR display, and outrageously fast M4 performance with powerful AI capabilities, the new iPad Pro takes a huge leap forward. Apple® today unveiled the groundbreaking new iPad Pro® in a stunningly thin and light design, taking portability and performance to the next level." --- (AAPL, press release, 2024/05/07)

"Is building some of the world's most advanced factories. Their ecosystem, again, edge computers and robotics, software for designing the factories, the workflows, programming the robots and of course PLC computers that orchestrate the digital factories and the AI factories." --- (NVDA, conference, 2024/06/02)

Competitive Landscape in the AI Chip Market

The AI chip market is fiercely competitive, with key players like Qualcomm, Intel, AMD, and Nvidia enhancing their product capabilities and market positioning. Qualcomm and Intel emphasize premium-tier and enterprise solutions, respectively, while AMD boasts superior performance with its Ryzen AI processors. Nvidia's strategic positioning in high-performance computing further underscores the intense competition.

"So what moves the market for us is it's a premium and high tier and I think what we're seeing in the China market is that the mix it's improving, as the market has stabilized it when in return to some form of normality what we really liked is that within that market premium and high tier as a percentage continue to increase and that's actually what's driving the results and we are seeing the very first instances of on-device AI and GenAI being launched in premium devices and that has been resonating well to consumers, so it's a positive trend that we like." --- (QCOM, earning call, 2024/Q2)

"So overall we feel like we're on a solid trajectory into a market that even though it's been dominated by the GenAI theme as enterprises, our OEMs and ODMs are communicating, there's growth here in servers and we now have a much better product position, improving ASPs and a better overall positioning in AI for a lot of these use cases where it's Xeon, CPU plus GPU and accelerator." --- (INTC, earning call, 2024/Q1)

"Whether you're looking at single threaded responsiveness, productivity applications, content creation or multitasking, 3rd gen Ryzen AI processors deliver significantly more performance, many times often beating the competition by a large double digit percentage across a broad range of use cases.Now, let's welcome another one of AMD's closest partners in the development of CoPilot Plus PCs." --- (AMD, event transcript, 2024/06/03)

"These distribution agreements underscore the significant demand and strategic market positioning of Cedarcross in the HPC landscape." --- (NVDA, press release, 2024/06/13)

"The second is when you look at generation over generation, the chips, especially at the premium tier are getting more capable as more not just GenAI, but other additional capabilities are being integrated into the chips and there's strong competition between the OEMs, so there's demand for those capabilities." --- (QCOM, earning call, 2024/Q2)

Regulatory and Geopolitical Factors

Geopolitical conflicts and macroeconomic uncertainties significantly disrupt AI chip supply and demand, necessitating geo-diverse capacity for resilience. Companies like Qualcomm, Intel, and TSMC are actively addressing these risks to ensure business continuity and shareholder value.

"Commitments and Contingencies. Geopolitical conflicts, natural disasters, pandemics and other health crises, and other factors outside of our control, could significantly disrupt our business." --- (QCOM, sec filing, 2024/Q2)

"And we feel very confident that the secular trend around compute growth, right, getting to $1,000,000,000,000 if you will in semiconductors, foundry growth and the need for leading node capacity for most of the fabless companies and also the need for geopolitical geo diverse capacity for resilience is a trend that creates has huge amount of headroom for shareholder value creation that if we execute, we can be we can reward our investors with." --- (INTC, conference, 2024/06/12)

"So, our question is for shareholders, right, how TSMC is going to mitigate this potential geopolitical risk?" --- (TSM, earning call, 2024/Q2)

"Looking at the full year 2024, macroeconomic and geopolitical uncertainty persists, potentially further weighing on consumer sentiment and end-market demand." --- (TSM, earning call, 2024/Q1)

Investment and Funding in AI Chip Development

Companies like AMD, Intel, Microsoft, and Nvidia are significantly increasing their investments in AI chip development. AMD is boosting headcount to support AI investments, Intel is expanding manufacturing capabilities, Microsoft is funding AI talent development, and Nvidia is securing strategic partnerships and funding rounds.

"The increase was primarily due to an increase in employee-related costs due to an increase in headcount to support increased investment in AI." --- (AMD, sec filing, 2024/Q1)

"To date, Intel has invested $18.4 billion in Fab 34. This transaction allows Intel to unlock and redeploy to other parts of its business a portion of this investment while continuing the build-out of Fab 34." --- (INTC, press release, 2024/06/04)

"This partnership is a testament to the shared values and aspirations for progress, fostering greater cooperation and synergy globally. The partnership will also support the development of a skilled and diverse AI workforce and talent pool that will drive innovation and competitiveness for the UAE and broader region with the investment of $1B in a development fund for developers." --- (MSFT, press release, 2024/04/16)

"CytoReason's strategic partnership with NVIDIA only emphasizes this point. I'm convinced that the involvement of leading asset managers and critical strategic partners in this funding round will further propel CytoReason's journey. CytoReason is excited to use this new funding to accelerate its growth and further cement its position in the market." --- (NVDA, press release, 2024/07/17)

"But I'd also bring up the SkipOne transaction with Brookfield, what we've done with Mobileye, the path we've set Alterra on, the investments that we've gotten with IMS, it really allows us to have multiple pools of capital to really go pursue the strategy, especially during a period of time where the economics of the business are still playing catch up." --- (INTC, conference, 2024/05/30)

Future Outlook for AI Chip Demand and Supply

Intel and AMD are both committed to advancing AI hardware, with Intel focusing on making AI PCs commonplace and managing supply through foundry relationships, while AMD emphasizes developing more performant AI hardware. Both companies are strategically positioning themselves to meet future AI chip demand and supply needs.

"Great point, @AdamConwayIE. "In other words, it's all about usable AI, rather than #AI for the sake of it." I suggest giving this article a read as @thraxbert expertly conveys @Intel's trajectory for making AI PCs commonplace in the not-so-distant future." --- (INTC, Twitter, 2024/05/01)

"AMD is excited to help enable this future with more performant AI hardware. https://t.co/PQCuXCCqfD" --- (AMD, Twitter post, 2024/06/08)

"So we do fully expect that those founder relationships, super important for us in the future, but they'll play a less critical or less substantial portion of the overall P and L as we go through the period. So peaking this year and next year and then moderating over time, But we've built into the margin assumptions for the product groups some continued use of external foundries." --- (INTC, event transcript, 2024/04/02)

"AMD is helping enable this future with more performant AI hardware powered by AMD Ryzen AI. https://t.co/idc3eD7xsO" --- (AMD, Twitter post, 2024/06/03)

"So another important point of building that out. And of course, as we've seen in different supply demand scenarios, the ability to control that supply is another benefit of the business model." --- (INTC, event transcript, 2024/04/02)