The AI Industry Faces a Shortage of Powerful Chips

The AI Industry Faces a Shortage of Powerful Chips
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The AI Industry Faces a Shortage of Powerful Chips

The exponential growth of the AI industry and the rapidly rising demand has exposed a huge bottleneck in the supply chain of powerful chips necessary for developing and deploying AI models.

Both small and large businesses have been impacted by the shortage, including several leading platforms in the AI industry.

Industry analysts believe that the situation won’t see any improvement until at least a year or more. Microsoft’s annual report, published recently, is the latest sign that the bottleneck in the supply chain is likely to continue.

Microsoft and OpenAI Report a Shortage Of GPUs

According to the annual report published by Microsoft, the shortage of graphics processing units (GPUs) is a potential risk factor for investors. The tech giant went on to emphasize the importance of expanding server capacity and data center locations in order to cater to the increasing demand for AI services.

GPUs are a crucial piece of hardware when it comes to running the complex calculations involved in AI training and deployment.

We continue to identify and evaluate opportunities to expand our data center locations and increase our server capacity to meet the evolving needs of our customers, particularly given the growing demand for AI services.Microsoft

Microsoft added that factors like networking supplies, predictable energy, and the availability of permitted and buildable land also affect GPU production.

Microsoft isn’t the only major tech company suffering from the bottleneck. During his testimony before the Senate in May, OpenAI CEO Sam Altman mentioned that ChatGPT was having a hard time keeping up with the number of requests thrown at it.

We’re so short on GPUs, the less people that use the tool, the better.Sam Altman

It’s yet another example of the shortage of GPUs posing a challenge for the industry.

What’s Causing the Shortage?

The sudden shortage of chips might remind one of the shortage of popular consumer electronics during the pandemic. Gaming enthusiasts ended up paying significantly inflated prices for PC graphics cards and game consoles.

The pandemic-era shortage was a result of delays in global shipping, lack of labor, delays in manufacturing, and the high demand for chips from cryptocurrency miners.

Nvidia reported in its May earnings call that it had “procured substantially higher supply for the second half of the year” in order to meet the rising demand for AI chips.

The current bottleneck, however, is of a different kind. It does not stem from a disruption of supplies and consumer-focused GPUs, say experts.

Rather, it’s the effect of the sudden and exploding demand for ultra-high-end GPUs capable of handling advanced functions such as training AI models.

Nvidia, a trillion-dollar company that controls approximately 84% of the discrete GPU market according to industry estimates, is set to benefit greatly from the surge in demand.

A research note published by Raj Joshi, a senior vice president at Moody’s Investors Service, estimates that the chipmaker will enjoy “unparalleled “ revenue growth in the near future.

Revenues from Nvidia’s data center business in the coming quarters will be greater than that of its rivals AMD and Intel combined, Joshi said.

AMD plans to make its AI chip debut near the end of this year, it said on Tuesday. The company’s CEO, Lisa Su, mentioned during its earnings call that consumer interest in its AI solutions is very strong across the board and that the company has made significant progress.

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