Viewpoint: AI hypes electronics, wider demand weak

Market: Metals
30/12/24

The rapid growth of artificial intelligence (AI) could support demand for some electronic metals, but a weaker than expected recovery in the wider semiconductor market indicates that the overall demand picture for electronics remains mixed going into 2025.

This year saw major growth for AI as AI chat bots and AI-capable smartphones entered the mainstream. Apple began the rollout of its Apple Intelligence software in October, catching up with competitors such as Samsung's Galaxy AI system, which launched in March. And in November Open AI's large language model ChatGPT reached 200mn active weekly users, doubling from a year earlier, as the day-to-day use of large language models has entered the mainstream and become more normalised.

The deployment of AI and machine learning will be supported by the physical expansion of data centres and the development of hardware. This will require more of the specialty materials that make up electronic components, especially as these components will need to adapt to be more energy efficient and capable of handling more data.

A single query to Chat GPT uses 10 times more electricity than a Google search and according to research from Goldman Sachs the data centre growth needed to support the rollout of AI could increase electricity demand by up to 160pc by 2030. This rising electricity demand is expected to boost demand for gallium nitride (GaN)-based power electronics, which switch the current and voltage flowing through a device. GaN power electronics lose less energy as heat, compared with standard silicon power electronics, and are able to operate at higher temperatures. As cooling makes up as much as 40pc of a data centre's energy consumption, switching to GaN-based power electronics could significantly reduce data centre energy usage and operating costs.

Another compound semiconductor material that could receive a boost from AI and data centre growth is indium phosphide (InP), which is used in data and telecom transceivers, advanced sensors, and eventually could be essential to 6G wireless and satellite communications networks. InP-based photonic integrated circuits can transfer large amounts of data much more quickly and with greater energy efficiency than standard electronic integrated circuits, which could make them a key technology for data centres that need to quickly transfer large amounts of data between internal AI clusters. The US government has recognised the importance of InP technology, with CHIPS act funding going to multiple InP expansion projects this year.

But despite this potential boost from AI and data centre demand, the overall demand picture from electronics has been mixed.

US-based specialty materials producer Materion reported in its third-quarter results that semiconductor recovery has remained slower than expected this year, despite stronger demand for logic and memory chips used in high performance computing, and that the market for 2025 will be difficult to predict. Materion produces materials used in electronics and chip manufacturing, including tantalum sputtering targets used for thin film vapour deposition, as well as antimony, hafnium, aluminium and molybdenum chemicals used in atomic layer deposition and ion implantation processes.

Major chip equipment maker ASML caused a stir among chip investors in the third quarter when it adjusted down its revenue prediction for 2025 to €30-35bn, from €30-40bn. Semiconductor manufacturers are limiting their capacity expansions because of slower than expected chip demand recovery in the wider market, ASML said.

Demand for chips peaked towards the end of the Covid-19 pandemic as supply bottlenecks and a sharp increase in demand for consumer electronics lifted shipments of silicon wafers for electronics to a peak of 14,565mn² inches (MSI) in 2022. In comparison, shipments in 2024 are expected to total 12,174MSI, data from semiconductor industry association Semi show. Silicon wafers are the substrate on which most chips are built, so can be a good indicator of wider demand dynamics in the electronics industry.

Global silicon wafer shipments are expected to increase to 13,328MSI in 2025, data from Semi show, but 2024 recovery was also expected to be much stronger and never materialised. So, despite the growth expected from the rollout of AI, the overall electronics picture remains murky.

By Sian Morris

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