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Techpoint insights
Surge in AI investment will extend electronic component lead times
Artificial intelligence is gathering momentum at pace . Nowhere is this more evident than when looking at investment trends in AI a few years ago compared to today . According to Statista , back in 2016 , investment in AI was less than $ 18 billion but in 2022 this figure ballooned to over $ 90 billion . The market for AI chips is growing rapidly , with Precedence Research predicting that it will exceed $ 227 billion by 2032 .
That said , AI is incredibly energy-intensive and requires huge processing power which means semiconductor technologies will be critical to fuelling the AI revolution of the future . Although the increased demand will be beneficial to electronics manufacturers , it will trigger a knock-on effect on the ‘ breadand-butter ’ markets which means shortages across all electronic sectors .
The boom in AI investment draws many parallels to the Electronics Vehicle ( EV ) surge seen during the pandemic which continues to have a lasting impact on chip manufacturers today . Despite the increased demand , chip manufacturers are unlikely to increase capacity significantly due to the last major market allocation in the late 90s and early 2000s .
Instead of AI and EVs , it was the mobile phone and telecoms boom which manufacturers reacted to by dramatically increasing capacity . However , almost overnight , chips went from being in high demand with limited supply to oversupply , leading to overstocking and lower prices .
TechPoint does not expect the market to react in the same way this time . With many semiconductor manufacturers operating with slim margins , this increase in demand is an opportunity to stabilize prices and avoid oversupplying the market which would bring prices down .
The message to customers is clear , there will not be the same opportunities to take advantage of lower prices and excess material . While lead times will ease , it is unlikely that they will return to pre-pandemic levels . We recommend keeping long-term order books and working closely with manufacturers and distributors as this is essential for effective planning and securing regular supply . ■
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