The Chip Insider®– Dr. Strange-AI-Guys, or How I Learned to Stop Worrying and Love AI

Summary:

Dr. Strange-AI-Guys, or How I Learned to Stop Worrying and Love AI:

Every once in a while, one comes across strange moments where life seems to be imitating art. In this case, I’m borrowing my title from a famous 1964 tragicomedy about the A-bomb: ‘Dr Strangelove, or: How I Learned to Stop Worrying and Love the Bomb’ … Today’s strange AI guys … and they are mostly guys … have fed a wide debate with visions of AI being anything from a world savior as depicted in the movie WALL-E to a world destroyer… akin to the ‘Terminator’ movies. As for semiconductors, no movie was made to envision how AI blew up real demand for chips and manufacturing capacity. For that vision, you had to be paying attention to Gary Dickerson’s New Playbook…

Since then, there has been nothing artificial about the demand artificial intelligence created for semiconductors. But the constant worry-wall question TechInsights keeps getting asked about is the degree to which this might be a bubble similar to Y2K and the heady birth of the internet days. In fact… it’s much worse than in 2000…

All cycles are different and this cycle is no different. The really odd things happening now, versus in 2000, are extremely high IC ASP growth, low electronics growth, and low chip equipment growth. AI is only one of several earthquakes shaking up the economic structure of our industry.

AI-driven chip inflation is through the roof, which has become the primary driver of IC market growth, which is only growing at 11% in constant dollars. The media and pundits blame the shortage for chip inflation. The shortage is only part of the cause. Structural changes to the industry from the death of Moore’s Law and the rise of hyperscalers are more to blame...

It also means that without demand destruction from pricing, average annual growth for the industry can be…

Electronics Content Ratio Worries: So, what about the slow growth in the electronics industry? Isn’t the >11X growth difference with ICs a sign of massive inventory build-up like in 2000? Not necessarily… content ratios are quite scary… the electronics business model should be failing as you are reading this... It’s not … Hyperscalers/Hyperverticals: There is a different explanation… Basically, the electronics market size and its trends are no longer good measures of electronics demand… If you can’t use electronics, there’s one other measure: GDP… IC content in WGDP has pretty much been a flat line that’s below 30 hundredths of a percent of GDP. In other words: Moore’s Law has been the greatest bargain in history, passing along almost all the additional value the semiconductor industry creates for free… Until Now!

The only question is how far it can go before it chokes off demand… But I don’t see IC-to-GDP content being a problem before the end of the decade... If I prove to be right, the native growth for semiconductors, with price-related demand destruction, should be in the double-digit range for the foreseeable future… not the 6 to 9% that we’re programmed from experience to think. My guess is somewhere in the 15 to 25% zip code through 2035.

If I’m right, the issues won’t be content ratios or inventories. They will be structural issues like power availability and electrical grid renewal and capacity expansion. At the corporate level, they will be how you positioned your business from the consumer/smartphone era to the new hyperscaler era. We’re all beginners again. Good luck and godspeed.

“If you don’t like what’s being said, change the conversation” — Don Draper, Mad Men