OpenAI CEO Sam Altman’s $7 Trillion Semiconductor Plan Sparks Concerns of Overinvestment

No one would ever accuse Sam Altman, CEO of OpenAI, the U.S. startup that sparked the artificial intelligence (AI) boom, of thinking on a small scale. The photo shows Mr. Altmann attending the World Economic Forum’s annual meeting (commonly known as Davos) held in Davos, Switzerland. Photo taken on January 18th (2024 Reuters/Denis Balibouse)

NEW YORK (Reuters Breakingviews) – Some people criticize Sam Altman, CEO of OpenAI, the U.S. startup that sparked the artificial intelligence (AI) boom, for thinking on a small scale. Nobody is here. On the contrary, Mr. Altman appears determined to single-handedly create an unprecedented AI investment bubble.

On the 8th, The Wall Street Journal (WSJ) reported, citing people familiar with the matter, that Mr. Altman was in talks with investors to build a semiconductor manufacturing facility to promote AI-related projects. He mentioned the need to raise up to $7 trillion.

This amount now seems fanciful, and if it really gets going, it will become a bubble of such a scale that past cases won’t matter.

Mr. Altman’s ambition is overwhelming. According to Semiconductor Intelligence, more than $150 billion will be invested worldwide in 2023 to increase semiconductor production. Investment amounts have increased by about 8% annually over the past 20 years. This is because as the number of semiconductors increases, so does the cost of production equipment.

The $7 trillion figure is equivalent to nearly 20 years’ worth of investment, assuming the current pace of investment continues. Even if a significant portion of that electricity were to be provided in power generation facilities that provide the huge amount of electricity required for AI processing work, it would amount to around 7% of global gross domestic product (GDP).

Despite the public’s current enthusiasm for everything named AI, it’s hard to imagine a project that could raise this much money.

WSJ reports that Mr. Altman appears to have consulted with the United Arab Emirates (UAE) government, but even the country’s main sovereign wealth fund, the Abu Dhabi Investment Authority, has only around $1 trillion in assets under management. Most other available funding sources are much smaller.

And even if Mr. Altman were able to raise that much money, it would be difficult to use it efficiently.

Taiwan Semiconductor Manufacturing Co. (TSMC) (2330.TW), opens new tab, the world’s largest contract manufacturer of semiconductors, spent more than $300 on capital investment in 2023. However, the start of operations at the new factory in Arizona, USA, has been delayed due to issues related to the lack of skilled workers.

Even if we focus only on the training of workers in new factories that require decades of funding, it will likely become a constraint going forward. Procuring special manufacturing equipment for cutting-edge semiconductor manufacturing will also be a bottleneck.

It may be that the semiconductor industry is severely underinvested, and the opportunities created by AI warrant a transformation in production. Well, maybe not.

Consider the telecommunications bubble of the late 1990s. Incumbent carriers and startups have borrowed around $1 trillion to build fiber-optic networks that will transfer the data exploding with the Internet. However, this was an excessive amount, equivalent to approximately 3% of world GDP at the time.

While most of these communications facilities eventually came into use over the next decade, the operators who had capitalized on the boom faced bankruptcy.

Investors can only hope that Mr. Altman’s bubble never bursts.

●Background news

*The Wall Street Journal reported on the 8th, citing people familiar with the matter, that OpenAI CEO Altman is planning to join a project to increase global semiconductor production capacity and remove constraints on the development of AI. We are in talks with investors about raising funds. The funding needed for these projects is estimated to be between $5 trillion and $7 trillion.See more

(The author is a columnist for Reuters Breakingviews. This column is written based on the author’s personal views.)

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The author is a columnist for Reuters Breakingviews. This column is written based on the author’s personal opinion.

Robert Cyran, U.S. tech columnist, joined Breakingviews in London in 2003 and moved four years later to New York, where he continues to cover global technology, pharmaceuticals and special situations. Robert began his career at Forbes magazine, where he assisted in the startup of the international version of the magazine. Before working at Breakingviews he worked as a market researcher and reporter covering the pharmaceutical industry. Robert has a Masters degree in economics from Birmingham University and an undergraduate degree from George Washington University.

2024-02-13 09:23:18
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