AI Chip Race: Fears Grow of Huge Bubble

“There are many ways that China can obtain US chips through intermediaries. But those sanctions also encourage China to develop its own capacity and be less reliant on US chips,” the author of the book “The Master Algorithm” said.

Indeed, the US sanctions have emboldened Chinese leaders who have pledged to step up their investments in AI chip production.

China Catching Up Fast
“China is subsidizing AI chips to the tune of $250 billion over the next decade to build a manufacturing supply chain and catch up,” Patel noted. He said China is currently about four to five years behind Taiwan, the global leader in chip manufacturing, and two to three years behind in semiconductor design — a race currently being won by US chip firms.

Other countries may struggle to enter the AI chip-producing ring, as they don’t have huge tech firms to commit tens of billions of investments, like Microsoft — which backs Altman’s OpenAI and Google, which last year unveiled its own AI chip.

“If Germany wants to be a leader in AI, they’re going to have to subsidize it because the likes of Mercedes Benz and Daimler are not necessarily going to invest a ton on advanced chips,” said Patel.

Advanced Chips a ‘Strategic Commodity’
Economic historian Chris Miller, the author of the book “Chip War,” told DW that more countries have realized that ultra-high-speed chips have become a “strategic commodity,” amid the current geopolitical standoff between world powers.

He predicted that the US government and others “will be quite sensitive about where the chip plants are located and who’s involved in their production” to avoid autocratic countries like China from using AI for nefarious purposes.

NVIDIA Leads Stock Market Melt Up
NVIDIA is the market leader in AI chip design. The Santa Clara, California-based firm is now valued at $1.8 trillion, making it the third-largest company on the US stock market, trailed by the likes of AMD and Intel.

Amid a stock market melt up — a period of rapid market growth fueled by investor optimism — NVIDIA has seen its value rise by $296.5 billion in just the last month, which most analysts think is unsustainable.

Domingos likened the current investor craze for AI to a “balloon that is inflating very rapidly,” until it bursts.

“A lot of people, companies, countries are going to lose a ton of money. There’s going to be a lot of carnage,” he told DW. “But in the longer term, AI will be like the Internet. Who cares about the dotcom bust these days? The Internet is a reality, it’s all-pervasive and the basis for the next advancement in technology.”

Nik Martin is editor and content producer at DW. This article was edited by Kristie Pladson, and it is published courtesy of Deutsche Welle (DW).