NVIDIA supplier warns semiconductor sector of drop in data centre spending
Written by Nicole Cappella Fri 3 Jan 2025
Since 2023, the semiconductor industry has seen record-breaking profits, due in large part to investments in the infrastructure required for artificial intelligence (AI) and high-performance computing (HPC). In 2024, the semiconductor sector grew 18.8%, reaching a total revenue of £506.7 billion ($628 billion).
Chip makers now show unprecedented growth. For example, shares of NVIDIA surged by more than 850% since the beginning of 2023, reflective of strong investor confidence in the sustained expansion of AI-driven markets.
However, concerns about the sustainability of the current pace of investment in AI are growing. Salesforce Chief Executive Officer, Marc Benioff, recently cautioned against overinvestment, stating the current pace was a ‘race to the bottom’. He emphasised prudent ways of investment, highlighting that though AI has enormous potential, it is time for companies to balance the frenzy of the short term with long-term value creation.
The hyperscale data centre market is highly concentrated among just a few players, the Big Tech companies like Microsoft, Amazon, and Meta, who spent £108 billion ($133.8 billion) last year on building out AI data centres.
Because of this concentration, even a modest decrease in spending on AI-enabled data centres could send ripples across the semiconductor supply chain. Projections for 2025 show that the industry is still growing, but possibly at a slower rate. However, according to CEO at Advantest, Doug Lefever, AI-enabled smartphones could play a critical role in mitigating the impact of slower spending and help to stabilise the industry.
“I do not like to use the word bubble because it implies that it is going to go away, but there will be cycles,” said Lefevre to the Financial Times.
Lefevre added, “When that next cycle comes, it could be pretty vicious.”
He did have a positive spin on the potential spending slowdown, however, noting that consumer AI devices could help to mitigate lower data centre spending.
“Everyone is holding their breath, waiting for the killer app with the AI handsets . . . if that happens and people start replacing their phones, it’s going to be crazy,” said Lefevre.
Written by Nicole Cappella Fri 3 Jan 2025