Seeing the macro view for microchips
By abrdn*
Semiconductors – the microchips that helped make the modern world – have become so critical to our way of life that they determine the shape of international politics, the structure of the world economy and the balance of military power.
It shouldn’t come as a surprise that the California-based chip giant, Nvidia, recently joined the likes of Apple and Microsoft in an exclusive club of companies with a market capitalisation of more than US$1 trillion. Nvidia designs the hard-to-get modified graphics chips (GPUs) that power the latest generation of artificial intelligence (AI).
It shouldn’t come as a surprise that the California-based chip giant, Nvidia, recently joined the likes of Apple and Microsoft in an exclusive club of companies with a market capitalisation of more than US$1 trillion. Nvidia designs the hard-to-get modified graphics chips (GPUs) that power the latest generation of artificial intelligence (AI).
In fact, the unexpected rally US stocks have enjoyed this year has been attributed to a handful of technology companies (including Nvidia) that are expected to benefit most from the sudden popularity of so-called ‘generative’ AI as an investment theme.
Investing is heavily influenced by big structural themes. The successful integration of macro and micro analysis may be one of the biggest opportunities over the next few years. Here are five long-term themes that affect the chip industry:
Investing is heavily influenced by big structural themes. The successful integration of macro and micro analysis may be one of the biggest opportunities over the next few years. Here are five long-term themes that affect the chip industry:
Product specialism
Microchips are highly specialised. They are designed and built to meet specific needs and, at the cutting edge of the industry, a chip that’s designed for one purpose can’t be used for something else. You can’t take an iPhone chip and plug it into a computer!
For example, the industry has been producing more chips every year since 2020. But the chip shortage that the auto industry has faced is due to a shortage of a specific type that many of the world’s chipmakers can’t produce because they don’t have the specialised machinery.
That’s because the smallest transistors on the most advanced chips really are very different from those on chips that have been around for a few years.
For example, the industry has been producing more chips every year since 2020. But the chip shortage that the auto industry has faced is due to a shortage of a specific type that many of the world’s chipmakers can’t produce because they don’t have the specialised machinery.
That’s because the smallest transistors on the most advanced chips really are very different from those on chips that have been around for a few years.
Artificial intelligence
We’ve seen political leaders in multiple countries trying to explore what levers they can pull over the rapidly developing artificial intelligence (AI) ecosystem. This is amid a growing recognition of the role AI will likely play as a symptom and tool of geopolitical rivalry.
The relatively small number of companies operating in each section of the AI-hardware supply chain makes it easier for politicians to regulate and control. However, the broader AI universe – the rest of the so-called ‘AI stack’ – will be harder to control because it’s much less concentrated than on the hardware side.
*This article was adapted from an episode of our Macro Bytes podcast which you can listen to below:
The relatively small number of companies operating in each section of the AI-hardware supply chain makes it easier for politicians to regulate and control. However, the broader AI universe – the rest of the so-called ‘AI stack’ – will be harder to control because it’s much less concentrated than on the hardware side.
*This article was adapted from an episode of our Macro Bytes podcast which you can listen to below:
Chip Wars - The geopolitics of microchips - with Chris Miller
A discussion with Chris Miller, academic, historian and author of Chip Wars: The fight for the world’s most critical technology, about the economic and geopolitical importance of semiconductors.