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Generative AI Will Continue to Shape Chips Market

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Deloitte’s 2024 Technology, Media and Telecommunications Predictions report released on Nov. 29 analyzes what the future of tech might look like over the next year. Featured topics include sustainability, artificial intelligence’s prevalence, the impact of cloud sovereignty and changes in the smartphone industry; in particular, the report focuses on how generative AI might change the shape of the semiconductor industry, with specialized generative AI chips potentially making up half of the value of all semiconductors sold by 2027.

“Looking into 2024, we’re seeing a clear trend in practical innovation meeting market demand. Generative AI continues to become a critical tool in our tech arsenal. Meanwhile, sustainability efforts in the telecom and semiconductor spaces are making tangible strides in reducing environmental impacts,” said Kevin Westcott, vice chair, Deloitte LLP, U.S. TMT and global telecommunications, media and entertainment practice leader, in a press release.

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Enterprise generative AI use expected to skyrocket

Deloitte predicted that “almost all enterprise software companies will embed generative AI in at least some of their products” in 2024. Because of this integration, AI chip sales could reach more than $50 billion globally, and software revenue may be at a $10 billion run rate by the end of 2024.

Sales of specialized chips optimized for generative AI have ballooned from nearly nothing to an anticipated two-thirds of all AI chip sales in 2022. Deloitte anticipates that total AI chip sales in 2024 will be 11% of the predicted global chip market of $576 billion. Looking ahead to 2027, the chip market may range from $110 billion (a more conservative and realistic approach, according to Deloitte) to $400 billion (based on more aggressive growth).

SEE: Why business leaders should exercise caution with regards to generative AI (TechRepublic) 

Pricing for generative AI for software vendors and IT departments will standardize, Deloitte predicted, with most services ranging from free to $50 per month. Of those services that incur a payment, they will likely use either per seat per month pricing, consumption-based pricing, a hybrid approach or implicit pricing (i.e., charging more in the same format as their existing payment model).

Trends in generative AI spending

More than 70% of companies experiment with generative AI today, but less than 20% are willing to spend more money than they currently are on it, Deloitte found.

Deloitte expected the largest cloud players to spend from 3%–13% of their 2024 capex on generative AI. The operating costs may become troublesome, with each generative AI query costing an estimated $0.01- $0.36. Deloitte found one service that costs $10 per user per month could be losing the provider $20 monthly, with some individual users costing more than $80. Companies will need to prove that generative AI creates a positive ROI.

Software companies will continue to work out how best to monetize generative AI services. Finding a pricing model that “captures its value, covers its costs and is embraced by customers” in 2024 may be a challenge, Deloitte said.

Which generative AI products will be most successful?

Successful generative AI products are likely to fall into the following categories, Deloitte predicted:

  • Enterprise productivity software suites for knowledge workers.
  • Enterprise software solutions such as customer relationship management, database and analysis solutions or enterprise resource planning tools.
  • Engineering, design and software development tools.

Private generative AI, which can be trained on and confined within proprietary and domain-specific data, are emerging as a useful option for enterprises. Publicly trained models may invent incorrect answers or draw data from inappropriate sources. Instead of using publicly trained models, organizations such as Adobe Systems and Getty Images have launched privately trained models; Deloitte expects more companies will do so in the future, either working with hyperscalers to host the models or purchasing hardware.

Semiconductor sales have a generative AI headwind

Advanced chips for running generative AI can be expensive (about $40,000 each) and difficult to acquire. These chips are mostly fabricated in Asia and subject to shifting geopolitical decisions, particularly trade restrictions on China and Russia made by the U.S., Europe and their Asian allies.

Demand for generative AI chips may trickle into the markets for liquid cooling ($2-$3 billion in spending in 2024, according to Deloitte) and high-voltage power supplies.

However, Deloitte pointed out that if enterprise AI use cases don’t materialize, AI chip sales may be in a bubble about to burst. Right now, many companies are ordering from a single designer and a single supplier. Organizations try to buy up supply while the AI market is hot. That means ‘pricing could be roughly as high as it might ever be: as that supplier builds more capacity, or as new competitors enter the market, prices are more likely to decline,” Deloitte predicted.

“2024 is effectively a transition year,” Deloitte wrote in the report. “The various kinds of enterprise software tools that are expected to include gen AI are not launching until late 2023 or early 2024.”

“Will the capabilities of generative AI enable truly differentiated financial performance and competitive advantage?” Deloitte wrote. The answer is yet to be seen.

Sustainability in the semiconductor industry

Sustainability is a hot topic in terms of semiconductors, with companies working on building less resource-intensive products while providing more performance at the same time.

“For semiconductor companies, environmental awareness is its own reward, being more sustainable is good, and is increasingly being required by what is sometimes called the 5Cs framework: capital (investors), compliance (regulators), constituents (such as employees),

communities and creativity (innovation),” Deloitte wrote. “But being more sustainable is often also better for reducing costs, can help in the competition for semiconductor talent and can reduce semi supply chain vulnerabilities.”

Smartphone 2024 trends are lead by authentication and satellite service

A possible shift in smartphone usage in 2024 is the increased use of the phone as an authenticator for “accessing websites, making payments, unlocking cars and controlling entry to physical buildings,” Deloitte said.

Direct-to-device satellite phone connectivity may make waves in terms of cell phone usage next year for limited areas with no established terrestrial phone coverage. Satellite phones exist today but operate separately and differently from personal smartphones. Although satellite service for commercial and government services is part of the equation, the satellite service Deloitte studied would be primarily for the commercial market. Apple is doing so with its collaboration with satellite company Globalstar, while T-Mobile partners with SpaceX.

Cloud sovereignty changes how cloud operators look at locations

Cloud sovereignty is the philosophy of building cloud computing resources that operate within a distinct geopolitical location. The proliferation of data, cybersecurity threats and some recent geopolitical tensions have encouraged technology buyers to position their cloud resources within particular locations; in particular, policymakers have focused more on making sure cloud data resides within the country in which it is being used. Cloud providers may be able to find opportunities for selling sovereignty solutions.

“Being able to quickly adapt to changes in the regulatory framework is crucial, as hundreds of countries develop their regulatory positions, each with their own nuances, some of which might be inconsistent with one another,” Deloitte wrote.

Note: TechRepublic has reached out to Deloitte for more information.

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