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A fall in spending by big tech firms on AI products could have serious consequences for the semiconductor industry. Doug Lefever, the CEO of Japanese semiconductor test equipment provider Advantech, expressed these concerns in an interview with the Financial Times, emphasizing that a slowdown could be mitigated if consumer AI smartphones gain traction.

Hyperscaler Concentration in AI Market: The Potential for a ‘Vicious’ Cycle

The surge in AI spending in 2024 has focused heavily on mega data centers, which are transforming the landscape of scale and energy consumption. Big tech companies have been compelled to explore alternative energy sources, such as nuclear power, for their computational needs.

Given the prominent role of big technology firms in AI spending, Lefever notes that this trend may lead to a “vicious” cycle; once the current cycle concludes, the industry could face a significant downturn before rebounding.

In the interview, Lefever also pointed out that increased consumer adoption of AI via smartphones may serve as a stabilitizing factor against potential supply chain fluctuations. He added that the trends may “not last long and then it may go right back up“, refraining from labeling the current situation as a bubble.

While initial spending on AI smartphones has been muted, Lefever noted that many in the industry are “waiting for the killer app with the AI handsets“. Should such an application emerge, increased demand for AI hardware could provide a buffer against economic downturns in tech spending.

Despite the lack of widespread concern regarding an AI spending slowdown in 2024, some investors are apprehensive about how competition might affect NVIDIA’s sales. As the industry leader in high-performance GPUs, NVIDIA has seen its products in short supply during increasing demand, resulting in big tech companies seeking alternatives or developing in-house AI processors.

NVIDIA’s stock has experienced a remarkable 859% increase since the beginning of 2023, although the company has faced challenges in the past. For instance, NVIDIA’s shares plummeted by 50% between late 2018 and early 2019 due to a lack of demand in the cryptocurrency mining market, leading to an influx of used GPUs and a significant loss in market capitalization.