From Kiplinger · · 1m 50s
AI Supply Chain Layers Exposed
AI isn't one industry but six interconnected layers with unique risks.
In brief
AI isn't one industry but six interconnected layers with unique risks. AI investment risks stem from owning multiple supply chain layers that share the same hyperscaler spending cycle. Originally reported by Kiplinger.
AI as Six Layers
AI runs through a supply chain with as many distinct layers as an automobile from raw material to finished product.
Layer 1: Chip Design
Nvidia remains dominant in chip design for AI, with AMD, Broadcom and Marvell also designing chips or components.
Layer 1 Margins
Designing a chip that outperforms the field captures the highest margins in the chain.
Layer 2: Chip Manufacturing
Taiwan Semiconductor Manufacturing Company holds a virtual monopoly on fabricating the most advanced AI chips.
Layer 2 Dependencies
TSMC requires ASML for extreme ultraviolet lithography machines, with no second supplier available.
Layer 3: Data Movement
Micron and Western Digital supply memory and storage, while Arista Networks and Broadcom handle networking equipment.
Layer 4: Data Center Construction
Vertiv and Eaton supply power and cooling for data centers, with Quanta Services handling electrical construction.
Layer 5: Hyperscaler Spending
Microsoft, Amazon, Alphabet and Meta will spend $700 billion to $725 billion on capital expenditures in 2.
Layer 6: Monetization
Salesforce, Adobe, ServiceNow, Palantir and Datadog sell AI-enabled products to enterprises.
Layer Interdependence
One company's cost of doing business is another company's entire revenue line across the chain.
Risk Propagation
A slowdown at the top of the chain affects every layer beneath it almost immediately.
Investment Strategy
Check if your holdings span multiple layers to avoid overexposure to the same buildout.
Hyperscaler Impact
A deceleration from 70% to 20% growth in hyperscaler spending still impacts all layers below.
Here's the gist
AI investment risks stem from owning multiple supply chain layers that share the same hyperscaler spending cycle.
