The Continued Influence of Generative AI on the Chips Market

Deloitte recently released its report on the future of technology, media, and telecommunications, focused on the year 2024. The report highlights various topics, including sustainability, the prevalence of artificial intelligence (AI), the impact of cloud sovereignty, and changes in the smartphone industry. One significant aspect discussed in the report is the potential for generative AI to revolutionize the semiconductor industry, with specialized AI chips making up a significant portion of all semiconductor sales by 2027.

According to Kevin Westcott, vice chair of Deloitte LLP, there is a noticeable trend toward practical innovation meeting market demand. Generative AI is becoming a critical tool, and sustainability efforts in the telecom and semiconductor sectors are making tangible progress in reducing environmental impacts.

Deloitte predicts that in 2024, almost all enterprise software companies will incorporate generative AI into some of their products. This integration could lead to global AI chip sales exceeding $50 billion, with software revenue reaching a $10 billion run rate by the end of 2024.

The sales of specialized chips optimized for generative AI are expected to account for two-thirds of all AI chip sales in 2022 and are projected to represent 11% of the predicted global chip market of $576 billion in 2024. Looking even further ahead to 2027, the chip market could range from $110 billion to $400 billion based on different growth scenarios.

Deloitte predicts that pricing for generative AI services will standardize, with most services being offered for free or ranging from $0 to $50 per month. Different pricing models, such as per seat per month, consumption-based, hybrid, or implicit pricing, may be used for services that incur a payment.

Although over 70% of companies are experimenting with generative AI, less than 20% are willing to increase their spending on it. Deloitte expects the major cloud players to allocate 3% to 13% of their 2024 capex (capital expenditure) toward generative AI, but warns that operating costs for generative AI queries could become problematic, with each query costing an estimated $0.01 to $0.36.

Deloitte highlights the challenge of finding the best pricing models for generative AI services that cover their costs, capture their value, and are embraced by customers. The report also identifies categories of generative AI products that are likely to be successful, such as enterprise productivity software suites, enterprise software solutions, and engineering, design, and software development tools.

In terms of semiconductor sales, the report points out that advanced chips for generative AI can be costly and challenging to acquire, as they are mainly produced in Asia and subject to geopolitical decisions and trade restrictions. However, if enterprise AI use cases do not materialize, AI chip sales may be in a bubble that could burst.

Sustainability is also a significant topic in the semiconductor industry, as companies strive to build less resource-intensive products while maintaining high performance. Deloitte emphasizes that environmental awareness is becoming increasingly important and is often accompanied by reduced costs, improved competition for talent, and reduced supply chain vulnerabilities.

Regarding smartphone trends in 2024, Deloitte notes the potential for smartphones to be used as authenticators for various purposes, such as accessing websites, making payments, unlocking cars, and controlling access to buildings. Additionally, direct-to-device satellite phone connectivity could reshape cell phone usage, particularly in areas with limited terrestrial phone coverage.

Finally, the report discusses cloud sovereignty and the importance of building cloud resources within specific geopolitical locations. The proliferation of data, cybersecurity threats, and geopolitical tensions have led technology buyers to position their cloud resources within specific countries to ensure compliance with local regulations. Cloud providers may find opportunities in selling sovereignty solutions to address these demands.

Overall, Deloitte’s report provides insights into various technology trends and their potential impact on different industries in the coming years.

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