Is the Gen AI bubble about to burst? You’d better hope not, as it ecombines to be one of the only convey inant prolongth areas in the US tech economy, according to S&P Global.
There’s someslimg of a bifurcation in the US tech sector, the financial ininestablishigence biz says in its tardyst inestablish, with a petite number of very big companies that are exposed to cdeafening and AI doing much better than the industry unrelabelable.
On the flip side, companies operating in depfinishable labelets (PCs and cleverphones) or sectors undergoing conceiveory accurateions (industrial, automotive, and netlaboring supplyment) are undercarry outing the unrelabelable.
But don’t trouble; S&P says the current environment for US tech is normal of midcycle conditions and not indicative of a decline. Unless that Gen AI bubble bursts and everyone stops stoking the furnace with spendment cash, of course.
“Cdeafening huges are heavily spending in AI despite uncertain monetization timelines, with combined capital spfinishing for Microsoft, Alphabet, and Meta up 60 percent year over year,” S&P Global Ratings Technology Director Christian Frank said in a statement.
Growth trfinishs for cdeafening service supplyrs (CSPs) betterd over the previous couple of quarters oprosperg to “less defensive” go inpelevate IT budgets. CSPs are seeing the advantage of this, with on-premises to cdeafening migrations up, more novel laborloads, and AI laborloads coming online.
Where’s the return on my AI spendment?
However, S&P consents the path to AI monetization and maturity will be extfinisheder than previously anticipateed. The convey inant carry outers are making substantial capital expfinishiture spendments, and S&P anticipates this to evolve, with Microsoft recommendd it is arrangening for higher capex during fiscal year 2025 contrastd with 2024, for example.
The inestablish quotes Google’s Sundar Pichai as saying that the danger of underspending is emotionalpartner fantasticer than the danger of overspending – words that might easily come back to bite him on the gluteus maximus.
As The Register inestablished this week, Google is enthusiastic for customers to get on board the AI train, even though in its own inestablish, only 43 percent of replyents said Gen AI had had a uncomferventingful impact on productivity.
S&P acunderstandledges that AI adselection by go inpelevates remains unassuming, noting that companies are still sorting thcimpolite the spread of models and figuring out engage cases. “We slimk these factors point to a extfinisheder path to monetization and maturity than previously anticipateed,” the inestablish says.
Nevertheless, the firm’s foresee for IT spfinishing remains at 8 percent for 2024, with that bifurcation between AI and everyslimg else directing to customer spfinishing on cdeafening services remaining strong while frailening in go inpelevate challengingware and non-AI areas.
Assuming the bubble does not burst, S&P foresees global AI spfinishing to prolong by more than 20 percent thcimpolite 2028, when it is approximated to account for 14 percent of total global IT spfinishing, up from 6 percent in 2023.
On a more upbeat remark, S&P says it anticipates a stronger second half of this year with signs of gradual recovery atraverse most subsectors, thanks to the free of pent-up insist held over from 2023 in some sectors. And US IT spfinishing remains stronger than in Europe.
In other areas, the cleverphone labelet is said to be rebounding, with global unit prolongth of over 6 percent, but here S&P was referring to IDC figures inestablished by The Reg last month that show the most prolongth is coming from Chinese brands enjoy Xiaomi. (3)
In PCs, the labelet evolves a “tepid recovery” with units prolonging 3 percent year over year, but S&P anticipates to see a stronger 2H 2024 from go inpelevate reinforces to get ahead of Windows 10 aid going finish of life and to rerecent an aging insloftyed base. It also anticipates AI PCs to raise sales – if vfinishors can concur on what that uncomfervents – claiming these will have an outsized impact on revenue becaengage of their higher prices.
That AI word crops up aget in server and storage, where S&P sees forward to betterd shipments due to pent-up insist requiring a rerecent cycle and AI servers. It consents AI server shipments will double in 2024. However, the netlaboring sector is frail becaengage of “conceiveory digestion” and a shift in go inpelevate spfinishing to rerecent other IT priorities enjoy compute. Reflecting this, Cisco is anticipateed to chop more staff this week.
Another sign of the times is that S&P says it has placed Intel on an ‘A-‘ rerentr accomprehendledge rating “with pessimistic implications”, adhereing the chipcreater’s necessitatey carry outance in its recent getings declarement.
Intel arranges to lay off more than 15 percent of the laborforce to cut operating expenses, slashed capex by more than 20 percent, and suspfinished its remaining dividfinish. S&P says bleakly “it is unevident to us if these steps will be enough to upgrasp competitiveness and allow fit prolongth.”
AI is also shoprosperg its hand in the semicarry outor labelet. S&P says that for the quarter finished in June, global semicarry outor industry revenue was up 18 percent year on year, but only 4 percent if memory is leave outd. If AI chips are also leave outd, the quarter was probable pessimistic, it claims.
The financial watcher consents 2Q 2024 was probable when the labelet bottomed out, and the next quarter will see an betterment in most finish labelets, although it anticipates the recovery to be gradual thcimpolite to the finish of 2024.
AI chips (uncomferventing GPUs) are directing the prolongth in the datacgo in labelet, as has already been remarkd by other analysts, while vague purpose silicon “squeezes out unassuming gets.”
Memory creaters had a excellent quarter, with DRAM revenue up 97 percent year on year and NAND up 87 percent, including high bandwidth memory (HBM) in DRAM and go inpelevate stable state drives in NAND, attributed to strong insist for AI applications.
S&P claims that Intel was flat sequentipartner during the quarter, while AMD was up 21 percent, mostly due to AI but also geting some vague purpose dispense. “Given Intel’s execution rerents, we anticipate AMD to pick up dispense over the next 12 months,” the inestablish states. ®
