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Doug Lefever, the CEO of Advantech, a prominent Japanese provider of semiconductor test equipment, has issued a cautionary statement regarding a potential decline in artificial intelligence (AI) expenditures by major tech firms and its ramifications for the semiconductor sector. In a recent interview with the Financial Times, Lefever indicated that while a slowdown might be on the horizon, the burgeoning consumer market for AI-enabled smartphones could serve as a mitigating factor. He suggested that spending trends in AI could follow cyclical patterns, with the industry potentially confronting a downturn following the current surge.
The Threat of Cyclical Spending in the AI and Semiconductor Industries
The substantial increase in AI-related spending anticipated for 2024 has been heavily influenced by the demand for robust data center capabilities for model training and testing. These mega data centers have significantly altered the landscape concerning scale and energy usage, compelling major tech companies to explore alternative energy solutions, including nuclear power, to sustain their operations.
This context leads to a concentration of AI investments within the data center domain, predominantly funded by large tech corporations eager to expand their computing infrastructures. Lefever of Advantech raised concerns that this pattern of spending could lead to a “vicious”cycle—where a peak in investment could eventually result in a sharp decline before the market potentially rebounds.
During his interview, Lefever underscored the importance of consumer adoption of AI technologies in smartphones, indicating that such trends could provide a buffer against potential downturns in supply chain demand. He expressed optimism that while the current surge in AI spending may not be sustainable, it may not necessarily signify an impending market collapse, as the term “bubble”implies an imminent disappearance of value. Although consumer AI devices might not directly employ NVIDIA’s products, they will rely on the GPU-focused infrastructure prevalent in data centers.
Despite the current lack of a “killer app”for AI smartphones, Lefever believes the market is ripe for such a development. A breakthrough application could lead to a surge in demand for AI hardware, which may act as a buffer against downturns in corporate spending on data centers.
While many investors have not yet focused on a potential slowdown in AI spending for 2024, there are concerns regarding the competitive landscape affecting NVIDIA’s market position. NVIDIA’s leading Blackwell GPUs have faced shortages and high prices, prompting many tech companies to redirect their investments towards competitors like Broadcom and Marvel, as well as to in-house AI chip development.
NVIDIA has experienced a dramatic 859% increase in share price since the beginning of 2023. However, the company is no stranger to market fluctuations; its share price plummeted by 50% from late 2018 to early 2019, largely due to a downturn in the Bitcoin market that led miners to offload their GPUs at significant discounts, adversely affecting NVIDIA’s market capitalization by over $23 billion.
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