The remarkable rise of artificial intelligence (AI) has sparked immense curiosity and speculation about which businesses will emerge as the true winners in this ever-expanding field. To gain a better understanding of this dynamic landscape, The Economist has conducted a comprehensive analysis focusing on where value has accumulated and how it aligns with the expected sales of AI products and services across different layers of the AI “stack.”
On March 18th, the spotlight will be on San Jose as numerous companies from various layers of the stack gather for a four-day event hosted by Nvidia. This AI extravaganza will showcase the latest innovations and shed light on the intense competition taking place within and between layers of the AI stack.
Our analysis has focused on four key layers: AI-powered applications for businesses outside the stack, the AI models themselves, cloud-computing platforms, and hardware components. Each layer plays a crucial role in enabling AI’s transformative capabilities.
Technological breakthroughs have historically propelled new tech giants to the forefront. For example, during the PC boom of the 1980s and 1990s, Microsoft and Intel claimed dominance with their Windows operating system and chips respectively. Similarly, the advent of smartphones saw Apple capture a significant share of global operating profits with the iPhone’s rapid success.
The generative-AI epoch is still in its early stages but has already proven to be immensely lucrative. The companies we examined collectively generated an impressive $8 trillion in value since October 2022, just before the introduction of ChatGPT. While stock markets have witnessed overall growth, a substantial portion of these gains can be attributed to the AI frenzy.
Value concentration is a prominent trend across all layers of the AI stack. The top three companies in each layer have seen their share of overall value increase by a median of 14 percentage points in the past 18 months. In the cloud layer, Microsoft has surpassed Amazon and Alphabet (Google’s parent company) thanks to its partnership with OpenAI, the creator of ChatGPT. Microsoft’s market capitalization now accounts for 46% of the total market capitalization of the cloud trio, up from 41% prior to ChatGPT’s release.
Examining value distribution between layers also reveals interesting patterns. Hardware manufacturers, including chip firms like Nvidia, server builders like Dell, and networking equipment companies like Arista, have accumulated the largest share of riches. In October 2022, the public hardware companies in our sample were valued at around $1.5 trillion. Today, that figure has surged to $5 trillion. This is a natural consequence of a technology boom, as the physical infrastructure must be established before comprehensive software offerings can thrive. In the late 1990s, during the internet boom, companies providing essential telecommunication equipment were the earliest beneficiaries.
Among the hardware players, Nvidia has emerged as the undisputed victor. With over 80% market share in AI chips, according to IDC, Nvidia has become the dominant force in the industry. Its near-monopoly in networking equipment used in AI data centers further consolidates its power. Nvidia’s data-center business witnessed a remarkable growth in revenue, tripling in the 12 months leading up to January while gross margins grew from 59% to 74%.
Recognizing the immense value at stake, Nvidia’s chipmaking rivals are vying for a piece of the pie. Established players like AMD and Intel are launching competing products, while startups like Groq and Cerebras are introducing their own specialized AI chips. The three major cloud giants, Nvidia’s largest customers, are also venturing into chip design to diversify their reliance and try to capture some of Nvidia’s lucrative profit margins. AMD’s CEO has boldly predicted that AI chip revenues could reach $400 billion by 2027, up from $45 billion in 2023, signaling the immense potential for growth in this sector.
While the AI landscape continues to rapidly evolve, our analysis provides valuable insights into the concentration of value within the different layers of the AI stack. As the competition intensifies, companies seek to stake their claim in this burgeoning industry, setting the stage for the next wave of innovation and market disruptions.
FAQs:
1. What is the AI stack?
The AI stack refers to the various layers of hardware and software on which artificial intelligence relies to function effectively.
2. How has value been concentrated in the AI industry?
Across all layers of the AI stack, a few leading companies have garnered an increasing share of overall value generated. This trend signifies the growing dominance of certain players in each layer.
3. Which companies have experienced the most significant value growth?
Hardware manufacturers, including chip firms like Nvidia, server builders like Dell, and networking equipment companies like Arista, have witnessed remarkable growth in value. Nvidia, in particular, stands out as the biggest winner so far.
4. Are there any competitors challenging Nvidia’s market position?
Yes, both established players like AMD and Intel, and startups like Groq and Cerebras, are actively entering the AI chip market to compete with Nvidia. Major cloud companies are also developing their own chips to reduce reliance on a single provider.
5. What is the outlook for the AI chip market?
According to projections, the AI chip market has significant growth potential, with estimated revenues reaching $400 billion by 2027, up from $45 billion in 2023.
/sources: <a href='https://www.economist.com/technology-quarterly/2023/03/02/the-stacks'](www.economist.com)
The AI industry has experienced a remarkable rise, generating immense curiosity and speculation about which businesses will come out on top. The Economist has conducted a comprehensive analysis to gain insight into this dynamic landscape and how value has accumulated in different layers of the AI “stack.” The study focuses on four key layers: AI-powered applications for businesses outside the stack, AI models, cloud-computing platforms, and hardware components.
In March, a four-day event hosted by Nvidia will take place in San Jose, bringing together companies from various layers of the AI stack. This event will showcase the latest innovations and shed light on the intense competition within and between layers.
The analysis reveals that value concentration is a prominent trend across all layers of the AI stack. The top three companies in each layer have seen their share of overall value increase by a median of 14 percentage points in the past 18 months. Microsoft has surpassed Amazon and Alphabet in the cloud layer due to its partnership with OpenAI, the creator of ChatGPT. Microsoft’s market capitalization now accounts for 46% of the total market capitalization of the cloud trio.
When examining value distribution between layers, hardware manufacturers have accumulated the largest share of riches. Nvidia, with over 80% market share in AI chips, has emerged as the dominant force in the industry. The company’s data-center business has experienced remarkable growth, with revenue tripling in the 12 months leading up to January. Other established players like AMD and Intel, as well as startups like Groq and Cerebras, are competing with Nvidia in the AI chip market. Additionally, major cloud giants are venturing into chip design to diversify their reliance on a single provider.
The AI industry is poised for significant growth, with projections indicating that AI chip revenues could reach $400 billion by 2027, up from $45 billion in 2023. As the competition intensifies, companies are vying for their share of the burgeoning industry, setting the stage for the next wave of innovation and market disruptions.
FAQs:
1. What is the AI stack?
The AI stack refers to the various layers of hardware and software on which artificial intelligence relies to function effectively.
2. How has value been concentrated in the AI industry?
Across all layers of the AI stack, a few leading companies have garnered an increasing share of overall value generated. This trend signifies the growing dominance of certain players in each layer.
3. Which companies have experienced the most significant value growth?
Hardware manufacturers, including chip firms like Nvidia, server builders like Dell, and networking equipment companies like Arista, have witnessed remarkable growth in value. Nvidia, in particular, stands out as the biggest winner so far.
4. Are there any competitors challenging Nvidia’s market position?
Yes, both established players like AMD and Intel, and startups like Groq and Cerebras, are actively entering the AI chip market to compete with Nvidia. Major cloud companies are also developing their own chips to reduce reliance on a single provider.
5. What is the outlook for the AI chip market?
According to projections, the AI chip market has significant growth potential, with estimated revenues reaching $400 billion by 2027, up from $45 billion in 2023.
Sources: The Economist – link
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