Slower AI output poses a real risk to chips, the Nvidia vendor said

• Advantest’s CEO warned that chipmakers could face a “vicious” downturn as data center spending declines.
• But he sees AI phones potentially justifying the AI ​​investments that underpin chipmakers.
• Doug Lefever’s comments to the FT come amid growing concerns about the current pace of AI spending.

Semiconductor companies would suffer if Big Tech’s spending on data centers fell, the head of the largest supplier of chip testing equipment told the Financial Times. Smart phones connected to artificial intelligence could save the day, he added.

According to Doug Lefever, CEO of Advantest, the downturn wouldn’t have to last long to have a noticeable impact on the industry. Given the concentration of hyperscalers in this space, he said, “any slowdown in data center build-out will have a major impact on the supply chain.”

Companies like Microsoft, Amazon and Meta Platforms have poured hundreds of billions of dollars into AI infrastructure, sparking both excitement and concern on Wall Street. By the end of the year, hyperscalers will have spent an estimated $222 billion on AI chips and data centers to power the new technology.

Although AI spending is expected to continue rising, some industry observers worry about whether the buying spree can continue — especially if AI doesn’t live up to the hype.

Even Salesforce CEO Marc Benioff has warned against overspending on AI, which he described as a “struggle” earlier this month.Race down. ” He added: “Although there is a big trend among many companies towards such public clouds, I think we have to be careful how much we invest.”

Concerns about high spending briefly hurt the performance of key semiconductor companies in September.

Lefever has good reasons to pay close attention to the area: The enthusiasm for AI has made semiconductors increasingly complex and increased the demand for Advantest devices. As a result, the Tokyo-based stock’s ADRs are up 71.32% this year.

“I don’t like to use the word bubble because it implies it will go away, but there will be cycles,” Lefever told FT. “When the next cycle comes… it could be pretty bad.”

However, AI smartphones could prove to be a saving grace for the industry, Lefever said.

“Everyone is holding their breath waiting for the killer app with the AI ​​phones… When that happens and people start replacing their phones it will be crazy,” he told FT.

Wall Street analysts are equally bullish on AI phones, a consideration that is already reflected in price targets. On Thursday, Wedbush Securities raised its target on Apple to $325, citing high expectations for Apple Intelligence – AI software available on new iPhone products.

“This will be a multi-year AI journey that will define the future of Apple with its next-generation chip architecture, hardware releases and future iPhone models built on the AI ​​foundation that many consumers will ultimately adopt.” said analyst Dan Ives.