A recent report by Bain & Company, a global management consulting firm, revealed that a growing demand for AI-focused semiconductors and AI-enabled devices could trigger a global chip shortage.
The consultancy firm highlighted that the surge in graphics processing units (CPUs), driven by AI model training in data centers and AI-powered consumer electronics like smartphones and laptops, may strain the semiconductor supply chain.
It is understood that there is a rising demand for Artificial Intelligence (AI) technologies in sectors like cloud computing, data analytics, and machine learning, which rely heavily on high-performance semiconductors, notably GPUs (graphics processing units) and specialized chips like AI accelerators.
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During the COVID-19 pandemic, supply chain disruptions and increased demand for consumer electronics, led to a significant chip shortage. As AI adoption grows across industries, from autonomous vehicles to large-scale data processing in tech companies, the demand for these advanced chips has continued to surge. This increased demand has placed pressure on global supply chains, which are still recovering from previous shortages caused by the pandemic and geopolitical tension.
Now, companies like Nvidia, which supplies GPUs, and Qualcomm, which designs Al-capable chips for devices, are leading a new wave of demand. Recall that Nvidia has already reported difficulties in keeping up with the heightened demand, with their GPUs in short supply.
The market leader which makes up about 60 to 70 percent of the global supply of AI server chips noted that sales should outpace expectations again in the current quarter. “Our demand is tremendous,” CEO Jensen Huang told analysts on an earnings call. There is no immediate end in sight for the GPU supply crunch.
Additionally, the complexity of manufacturing these chips, coupled with long lead times and limited production capacities, could further exacerbate the shortage. Products from Samsung and Microsoft have begun integrating Al functionalities directly into consumer electronics, further fueling demand.
Bain & Company warned that this could cause bottlenecks in the semiconductor supply chain, which is spread across multiple global players.
Head of the technology practice at Bain & Company Anne Hoecker said,
“Surging demand for graphics processing units (GPUs) has caused shortages in specific elements of the semiconductor value chain. If we combine the growth in demand for GPUs alongside a wave of AI-enabled devices, which could accelerate PC product refresh cycles, there could be more widespread constraints on semiconductor supply”.
The report emphasized that a 20% increase in demand could disrupt the delicate balance of chip production, potentially leading to shortages. “The AI explosion across the confluence of the large end markets could easily surpass that threshold, creating vulnerable chokepoints throughout the supply chain”, the report added.
Additionally, geopolitical tensions, particularly involving U.S.-China trade restrictions, and delays in factory construction, could exacerbate supply constraints.
The surging demand for AI technologies, coupled with existing semiconductor supply chain challenges, is raising the specter of a global chip shortage. If the chip supply doesn’t scale to meet AI’s expanding needs, there are predictions that it could lead to production delays and higher costs, impacting industries that depend on these critical components.
Notably, this situation is prompting governments and businesses to explore strategies for boosting domestic semiconductor production, improving supply chain resilience, and investing in new technologies to mitigate the risk of prolonged shortages.