AI Surge Predicted to Cause Global Chip Shortage by 2026,

Ai Surge Predicted to Cause Global Chip Shortage by 2026,

AI Surge Predicted to Cause Global Chip Shortage by 2026,

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A potential global chip shortage is on the horizon due to the rising demand for AI-related products and services, as predicted in a new report.

Consultancy Bain and Company forecast that AI workloads could increase by 25% to 35% annually until 2027. Any demand surge above 20% could disrupt the equilibrium and lead to another chip shortage.

According to the authors of the Global Technology Report 2024, the widespread growth of AI across major markets could create vulnerabilities in the supply chain.

This growth will require larger data centers with over a gigawatt of capacity, compared to the current 50 to 200 megawatts of existing data centers.

The market for AI software and hardware is expected to grow between 40% and 55% annually over the next three years due to the increasing demand for AI infrastructure and products.

The report also predicts a significant increase in the total AI market value, reaching between $780 billion and $990 billion by 2027.

The Supply Spider’s Web and Its Challenges

To meet the rising demand for AI components, the supply chain must scale up accordingly. However, the complex supply chain resembles a spider’s web, with chip raw materials at its core.

Key components like fabs and data centers have lead times ranging from three-and-a-half years to over five years, posing a significant challenge in keeping up with demand.

Graphic showing development times for components, resources, and services in the AI supply chain.
Development times for components, resources, and services in the AI supply chain. Image: Bain and Company

Bleeding-edge fabs that produce advanced chips are particularly vulnerable and will need to increase output by 25% to 35% to meet the growing demand in PCs and smartphones.

The report suggests that building up to five more bleeding-edge fabs would be necessary, with estimated costs ranging from $40 billion to $75 billion.

Furthermore, the transformation of chips into AI-enabled devices like smartphones and PCs presents additional challenges, especially in meeting the growing demand for data security.

The Last Global Chip Shortage

Despite record profits for core companies controlling large portions of the supply chain, the industry faced a global chip shortage starting in early 2020 due to various factors like the COVID-19 pandemic and supply chain disruptions.

Geopolitical tensions, trade restrictions, and efforts by countries to enhance their semiconductor production capacity could further exacerbate the chip shortage.

Desire for AI Sovereignty and Its Impact

In addition to manufacturing capacity constraints, geopolitical tensions and efforts to enhance data sovereignty could also contribute to a potential chip shortage.

Export controls, government investments, and initiatives to boost semiconductor production domestically are all part of the efforts to address these challenges.

Guidance for Executives in the AI Supply Chain

The Bain report offers recommendations for companies to navigate a potential chip shortage:

  • Understand and track the entire AI supply chain.
  • Secure long-term purchase agreements for chip access.
  • Design products using industry-standard semiconductors for flexibility.
  • Diversify suppliers and source components from multiple regions to mitigate geopolitical risks.

Business leaders are urged to take proactive measures to reinforce their supply chains and ensure resilience in an AI-driven world.

author avatar
roosho Senior Engineer (Technical Services)
I am Rakib Raihan RooSho, Jack of all IT Trades. You got it right. Good for nothing. I try a lot of things and fail more than that. That's how I learn. Whenever I succeed, I note that in my cookbook. Eventually, that became my blog. 
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