Grading the Chips Act and the other costs of AI

Hello from sunny California. I’m in Los Angeles this week, along with thousands of bankers, investors, policymakers and tech executives, for the annual Milken Institute Global Conference.

While the conference, now in its 27th year, is known as an exclusive event for financiers, tech heavyweights are increasingly drawn to the gathering in palm tree-lined Beverly Hills. For example, Elon Musk skipped the Met Gala this year and joined the conference on Monday evening in a session where he shared his visions for AI and colonising Mars, as well as his concerns about declining populations and illegal immigration.

Musk was not the only one talking about AI at the conference. The words “artificial intelligence” came up at least five times in every panel and sideline meeting I attended, and even in casual conversations with fellow conference attendees while waiting for our Ubers.

While the theme of this year’s conference is “Shaping a Shared Future”, much of the discussion about AI centred on how the US should compete with China on this technology. A panel on the geopolitics of AI said there was “not a lot” of hope to include Beijing in the talks about AI safety and regulation that the US is having with its allies. Even the idea of the UN serving as a potential platform for building a global AI governance framework was dismissed.

“The more you do things in the UN, the more you play into China and Russia’s hands,” said Karen Pierce, Britain’s Ambassador to the US.

I left the Milken conference wondering: How can we govern this immensely powerful and rapidly developing technology when there is such a slim chance that the world’s two AI superpowers can work together on this issue?

Who’s paying for AI?

Artificial intelligence is costly, and not only from a financial perspective. As more companies are building data centres to train large language models or power their AI services, demand for electricity is rising at record speed.

Global power demand from data centres could more than double from 2022 to 2026, the International Energy Agency estimates, and some Asian countries are already feeling the heat, Nikkei Asia’s Sayumi Take writes.

In Japan, where the government is working to update its basic energy policy by next March, this surging demand for power is raising hurdles for the country’s decarbonisation goals.

The issue is also looming over South Korea and countries in south-east Asia, where the market for data centres is also growing.

Back in the game

SoftBank has signalled it has no intention of being left out of the latest artificial intelligence funding frenzy by leading a $1.05bn investment in autonomous car start-up Wayve.

Microsoft and Nvidia are also backing London-based Wayve in what is Europe’s largest ever AI financing, the Financial Times’ Peter Campbell, Tim Bradshaw and David Keohane report.

SoftBank chief Masayoshi Son has been on the hunt for big AI deals following September’s blockbuster public listing of Arm, the UK-based chipmaker in which the Japanese conglomerate owns a majority stake.

But since ChatGPT reignited investor interest in AI 18 months ago, SoftBank has been slower to deploy capital in the sector than US tech companies such as Microsoft, Amazon and Google.

After SoftBank’s Vision Fund splurged tens of billions of dollars at lofty valuations on companies including Uber, WeWork and ByteDance, with decidedly mixed results, the Japanese group is now stepping up its due diligence.

Kentaro Matsui, head of new business at SoftBank and a managing partner in its Vision Fund, told the FT that it took 18 months from its first meeting with Wayve before a formal investment decision was made.

Making the grade

The majority of the $39bn Chips Act funding has been distributed, with more than half of the funding going to Intel, TSMC and Samsung. And there is good reason for that. The three companies are expected to help the US more than triple its semiconductor manufacturing capacity by 2032, giving the country control of almost 30 per cent of advanced chipmaking, according to a report from the Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG).

By comparison, while China has laid out more than $142bn in government incentives to build its domestic semiconductor industry, the country is expected to be able to make only 2 per cent of the world’s most advanced chips by then. Both China and the US had no meaningful advanced chip manufacturing capacity as of 2022.

In an interview with Nikkei Asia’s Yifan Yu, SIA president and CEO John Neuffer said these numbers serve as the first report card for the Chips Act, which “looks pretty strong”. And the report card, he predicts, will help convince the next Congress and administration — regardless of who wins the November presidential election — to back another round of support for the chip industry.

The crackdown factor

Startups around the world have been struggling with a funding slowdown, but in Vietnam they are facing an added hurdle: a government crackdown on corruption. In the past two years, the clampdown has included the dismissals of two presidents and a top lawmaker as well as stock exchange and regulatory officials in what is usually a stable one-party state.

Vietnam’s unprecedented campaign against corruption has cast a pall over the country’s start-up scene, indicating gloom has spread beyond the property and banking industries most affected by recent criminal sentences linked to graft, local investors told Nikkei Asia’s Lien Hoang in Ho Chi Minh City.

Venture capitalists expressed concern about the crackdown’s impact on macroeconomic sentiment, adding to a funding winter already being felt across south-east Asia’s technology industry. A recent report shows the country’s venture capital funding dropped 17 per cent in 2023 from the previous year, though that was less drastic than the 35 per cent fall globally.

Suggested reads

1. Four start-ups lead China’s race to match OpenAI’s ChatGPT (FT)

2. Europe faces up to China’s EV dominance as carbon-zero targets loom (Nikkei Asia)

3. US revokes licences for supply of chips to China’s Huawei (FT)

4. TikTok challenges ‘extreme’ US divest-or-ban bill in court (FT)

5. Baidu PR chief’s videos spark backlash over harsh workplace culture (Nikkei Asia)

6. BYD Americas CEO says EV maker is not TikTok or Huawei (Nikkei Asia)

7. Universal Music ends boycott of TikTok with new licensing deal (FT)

8. Microsoft to build $3.3bn AI data centre on old Foxconn site (Nikkei Asia)

9. Can Elon Musk’s Tesla keep straddling the US and China? (FT)

10. Can investment from TSMC, Infineon and others revive Europe’s chip dreams? (Nikkei Asia)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

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