Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: Hey, I got to say that there are moments in
Speaker 2: time like today, with all the spend and build out
Speaker 2: and companies doing things related to AI and questions around
Speaker 2: the return on investment, the ROI and the impact of
Speaker 2: artificial intelligence, that we kind of wish we could pull
Speaker 2: out that crystal ball and see a little bit into
Speaker 2: the future.
Speaker 1: I think it's fair to say Chris Miller saw something
Speaker 1: years ago. He's the author of the twenty twenty two
Speaker 1: bestseller Chip War, The Fight for the World's Most Critical Technology.
Speaker 1: He joins us from Pittsburgh this afternoon. Chris, it's good
Speaker 1: to have you back with us. Carol and I were
Speaker 1: just talking, and you know, you wrote this book close
Speaker 1: to four years ago. At this point, how different is
Speaker 1: the world of semiconductors and the world's reliance on semiconductors
Speaker 1: now than when you wrote the book.
Speaker 3: Well, I think the key difference is just the scale
Speaker 3: of spending that we've got right now on building data
Speaker 3: centers and buying all of the chips that are required
Speaker 3: inside of them, and Nvidia first and foremost, but not only,
Speaker 3: we've seen companies transformed by the data center build out
Speaker 3: but in a lot of ways, not much just changed
Speaker 3: other than that we're still sourcing our key semi conductors
Speaker 3: from Asia and above all from Taiwan, and so the
Speaker 3: industry is supercharged, its size, growing faster than ever, but
Speaker 3: dealing with some of the same supply chain choke points
Speaker 3: that it had a decade ago.
Speaker 2: You know, we talk a lot with one of our
Speaker 2: brilliant voices on the chip world, and that is our
Speaker 2: own Ian King, who has seen a lot of cycles,
Speaker 2: the ups, the downs, and we talk a lot about
Speaker 2: that supply demand imbalance and what happens when there's a
Speaker 2: lot of demand, there's not enough supply. The buildout continues,
Speaker 2: the investment supply goes up, and then there's a glut.
Speaker 2: So I'm just curious what your view is when it
Speaker 2: comes to the cyclical nature of the semiconductor world. Has
Speaker 2: AI changed it or we we'll see also and over
Speaker 2: build and oversupply and then a glut.
Speaker 3: I think if you look historically, certainly you see cycles up,
Speaker 3: cycles down, but there are moments when you see step
Speaker 3: changes in terms of demand for certain types of chips.
Speaker 3: We saw that with smartphones, for example, there was no
Speaker 3: demand for smartphone chips and then now everyone needs a
Speaker 3: new smartphone every couple of years, and what we're seeing
Speaker 3: in AI right now is that type of step change,
Speaker 3: a huge increase in just the baseline amount of chips
Speaker 3: that we're going to need for data centers driven by AI,
Speaker 3: and so I think we shouldn't expect cycles to be
Speaker 3: over Certainly there'll be ups and downs in the future,
Speaker 3: but it's now very clear. I think that we're just
Speaker 3: going to need a lot more compute for AI purposes
Speaker 3: in the future, and as a result, will need a
Speaker 3: lot more of the AI chips that go inside of
Speaker 3: data centers.
Speaker 1: In your view, is the promise that many people think
Speaker 1: AI is supposed to deliver, Will it actually be delivered? Like,
Speaker 1: what's the future that you envision after all this capex
Speaker 1: is spent?
Speaker 3: Why? I think it's in some ways funny when we
Speaker 3: ask will AI deliver? Because if you look just three
Speaker 3: years ago, even after chat schipt was released, there are
Speaker 3: so many things that were not possible that are possible today,
Speaker 3: whether it's the number or the scale of hallucinations and
Speaker 3: answers that chatbots give you, or the scale of work
Speaker 3: that you can put together today that just wasn't possible
Speaker 3: in the past. We've already had so much new capability
Speaker 3: generated just in the couple of years since Chat schipt
Speaker 3: that in some ways, I think it's an absurd question
Speaker 3: to ask will AI deliver it already has in a
Speaker 3: lot of ways. But I think I understand why there's
Speaker 3: plenty of questions about what about the investment is happening
Speaker 3: right now, will that investment pay off? And I think
Speaker 3: there are reasons to think carefully about how much each
Speaker 3: company is putting in over what time horizon. But I
Speaker 3: guess when I zoom out, I ask myself, do I
Speaker 3: want a world in which there is more access to
Speaker 3: compute or last? And it seems to me that we should,
Speaker 3: rather than being concerned that there's too much compute being
Speaker 3: put in the ground, be excited that there's actually companies
Speaker 3: willing to invest in the infrastructure that's going to deliver
Speaker 3: all these capabilities.
Speaker 1: Well, I think it's an important question to ask for
Speaker 1: a few reasons, and one of those is because if
Speaker 1: you look at just the capex that these companies are spending,
Speaker 1: you know, one company two hundred billion dollars in a
Speaker 1: single year. That's a big commitment, and that's something that
Speaker 1: they have to convince investors that is money that is
Speaker 1: going to the right place, that's money that has to
Speaker 1: be earned back. Plus on companies coming to a hyper
Speaker 1: scaler and saying, yes, we think that this money is
Speaker 1: not only being well spent, but then we can use
Speaker 1: this compute to actually create a product that will provide
Speaker 1: a return on investments. So, yes, we've seen a lot
Speaker 1: of the hyperscalers benefit the you know, the anthropics and
Speaker 1: the open ais and the mistraws like that's amazing stuff.
Speaker 1: But at the end of the day, there are a
Speaker 1: lot of companies that are not necessarily technology companies that
Speaker 1: maybe aren't yet necessarily seeing an increase in productivity as
Speaker 1: a result of these tools. So my question is do
Speaker 1: those companies start to see that do we live in
Speaker 1: a world where this is a layer, just like the
Speaker 1: Internet was a layer of technology.
Speaker 3: I think there's no doubt that we're going to have
Speaker 3: AI as a layer that's embedded into all technology that
Speaker 3: we use. And when I look at the economic question,
Speaker 3: I say, first off, is it profitable to serve AI
Speaker 3: systems today, not train the next generation, but serve today.
Speaker 3: And if you listen to what's publicly reported about OpenAI
Speaker 3: or anthropic, their margins on their inference business are not
Speaker 3: just positive but quite good, and so that I think
Speaker 3: is pretty strong evidence that the delivery of already existing
Speaker 3: AI services is a pretty profitable business. The next question
Speaker 3: is should we be investing in R and D in
Speaker 3: the next generation, which is of course very very expensive.
Speaker 3: But I think it's hard to argue we should dramatically
Speaker 3: slow down R and D and AI just given all
Speaker 3: of the extraordinary improvements that we've seen over the past
Speaker 3: couple of years in terms of capability. And so when
Speaker 3: you start breaking it down and ask, well, which specific
Speaker 3: investment do we think is excessive? Which specific investment would
Speaker 3: rather not be doing? Would you really like to be
Speaker 3: the CEO of the only big tech company that's not
Speaker 3: investing in AI. That doesn't seem like a very comfortable
Speaker 3: place to be. And I'd rather have a situation in
Speaker 3: which the big technology companies are investing more rather than
Speaker 3: putting money in the bank or buying back their stock
Speaker 3: because they didn't have any comfitable by investment opportunity.
Speaker 2: Well, you know, I would say Apple's doing it differently,
Speaker 2: and I guess time will tell whether or not their
Speaker 2: approach works out. Chris, I am curious to you know,
Speaker 2: who do you talk to, what research do you follow,
Speaker 2: what are the leading voices, what are the leading companies
Speaker 2: that you watch to figure out kind of how the
Speaker 2: semiconductor space is evolving. I mean, we still know TSMC
Speaker 2: is still the big manufacturer of all chips in the world,
Speaker 2: and there's geopolitical attentions to that. But give us an
Speaker 2: idea of where do you think kind of investors and
Speaker 2: just the world at large need to be focusing their
Speaker 2: attention on. When it comes to the semiconductor world. Is
Speaker 2: it Nvidia, is it China? Is it something else?
Speaker 3: I think the hard problem is that it's all of
Speaker 3: the above, and we've seen this play out in the
Speaker 3: GPU supply chain over the past couple of years, where
Speaker 3: we've had shortages and different types of components, different materials,
Speaker 3: and the memory chips that go next to GPUs and
Speaker 3: AI servers. Each part of the supply chain has had
Speaker 3: to dramatically ramp up its production capacity to respond to
Speaker 3: the surge and demand. And so if you only look
Speaker 3: at one part of the supply chain, you miss the
Speaker 3: challenges that other parts are often facing. And so it's
Speaker 3: the chip designers. It's the chip makers, but it's also
Speaker 3: the materials suppliers, which are often not even thought of
Speaker 3: as being semiconductor firms, but produce many of the capabilities
Speaker 3: that are critical to actually manufacture the AI chips and
Speaker 3: servers that we need.
Speaker 2: Do you think the world do you think the US
Speaker 2: specifically does need to be restricting sales of its most
Speaker 2: sophisticated chips to China or on others? I mean, we
Speaker 2: did see Nvidia. They still face the uncertainty in China,
Speaker 2: that's their largest market, or which it is the largest
Speaker 2: market for chips. The government granting some licenses to ship
Speaker 2: a small amount of some of its processors to customers there,
Speaker 2: but and Vidia is not sure if the Chinese government
Speaker 2: will give its approval. So there's still some back and
Speaker 2: forth here. But is it still an arms race of source.
Speaker 3: Arms race of sorts?
Speaker 2: Excuse me?
Speaker 3: Yeah, I think armed races is not a bad analogy.
Speaker 3: When you listen to tech CEOs, they'll speak in the
Speaker 3: same language. They're struggling to get access to all the
Speaker 3: computing power that they need, that they envision needing more
Speaker 3: tomorrow than they've got today. And if you listen to
Speaker 3: Chinese technology leaders. What you hear from them is challenges
Speaker 3: and getting access to computing power. And the primary reason
Speaker 3: they've struggled to deploy AI products at scale is because
Speaker 3: they've struggled to get access to all of the computing capabilities.
Speaker 3: And it's on a regular basis we see new Chinese
Speaker 3: models launched that can actually be deployed at scale because
Speaker 3: they don't have access to the advanced chips that they need.
Speaker 3: So this does, I think, seem to me that this
Speaker 3: is still a very powerful card that the US has
Speaker 3: to play, and so I think we should be very
Speaker 3: careful or on any decisions to give China more access
Speaker 3: or at least make sure that we're getting something in
Speaker 3: exchange for that.
Speaker 1: On that, Chris, the US support of TSMC and the
Speaker 1: US support of Intel different types of support, And I
Speaker 1: guess you could call the TSMC one encouragement to build
Speaker 1: here in the United States. What is the right industrial
Speaker 1: policy to reduce reliance on companies outside of the US.
Speaker 3: It's a really hard problem because TSMC is such a
Speaker 3: capable and efficient manufacturer in their home base in Taiwan.
Speaker 3: But I think the US government is right to say
Speaker 3: that we need a more diversified manufacturing base for the
Speaker 3: world's most important semiconductors. I think we've learned over the
Speaker 3: last couple of years there's no silver bullet. President Trump's
Speaker 3: tried tariffs that comes with obvious downside. President Biden tried
Speaker 3: subsidies that worked to a degree, but only to a degree.
Speaker 3: Here's the reality. The chip industry has involved hundreds of
Speaker 3: billions of dollars of cappax over the last several decades,
Speaker 3: and so it's just not going to move fast. And
Speaker 3: so if you want to slowly change the structure of
Speaker 3: where chips are produced, you've got a plan for years
Speaker 3: of years of implementation of measures designed at the shift
Speaker 3: economics of the GIP industry.
Speaker 2: All right, Kenly with there, Chris Miller, thank you so much.
Speaker 2: Good to check in with you. Professor of International History
Speaker 2: at the Fletcher School at Tufts University, author of Chipward
Speaker 2: joining us on this Thursday.