NVIDIA's ascent shows the wild digital capitalism of the AI age

However, it is the company's core business that has powered the advance via the qualitative leap in the microchip industry.

NVIDIA's trillion-dollar figures have generated the most eye-catching headlines, but many other developments in recent months have underlined a prevailing and important trend: a tangible and robust infrastructure to advance AI as a whole is under development.

This will prove much more important, and not just to investors, than the series of mostly failed apps and platforms that have crowded the market in an attempt to ride on the wave of interest created by the genuine success of Chat GPT.

Lisa Su, CEO of AMD, one of the major manufacturers that competes with NVIDIA, predicted at the end of last year that the microchip market would reach $400bn by 2027, with current estimates indicating it may exceed that figure.

These major numbers, including the results achieved by NVIDIA and others in the tech sector, show how the foundations of the AI revolution depend on the chipmaking industry.

Any system, weapon, robot or application using AI needs this tech. As well as boosting business and energising stock markets, the capacity of nations to produce it will define the global geopolitical and military power rankings in the years ahead.

For now, NVIDIA is in the lead. How long it stays there will depend on many factors. Fluctuations in its stock price and profits are inevitable and will track the trials and tribulations of the technology itself.

The reactions and plans of other major firms, such as Microsoft, Amazon, and Google, will also play a part.

Clients-turned-rivals?

At the moment, they are NVIDIA's clients, but they could also become its rivals, seeking to enter the world of chip production for their own AI operations and cloud-based computing strategies.

Then there are potential disruptions from other nations or even entrepreneurs, such as China, India, Elon Musk, Mukesh Ambani, and others.

According to Synergy Research Group, spending on cloud infrastructure services is growing at around 18% annually despite the turbulent economic and political climate, which is a clear indication that generative AI technology and services are driving demand upwards.

The global market share of the three major cloud service providers – Amazon, Microsoft, and Google – is estimated at 66%. All of them are from the United States.

Chipped away

Decades ago, the US produced nearly 40% of the world's chips, but that share has now dropped to 12%. Last year, $53bn was allocated to persuade semiconductor manufacturers to move their operations to the US, but the results of the appeal have been modest in a market that is as difficult as it is lucrative.

The US lacks the highly advanced skills required for the semiconductor industry, with an estimated shortfall of around 70,000 employees, not to mention the fact that large companies effectively control the trajectory of this industry, limiting the opportunities for emerging players.

Undoubtedly, the financial independence tech giants enjoy is a key driver of artificial intelligence. But there is an aspect to the sheer pace of the change that is clearly frightening: the competition for material profit at all costs.

This quest for domination also comes without regard for the dangers to the job market or even potential existential threats from AI to humanity itself.

The executives of these companies are aware of the scale of the danger, creating a sense of irony over how they discuss it at various conferences and summits.

This trend extends to the European Union, which has provided more than $46bn in funding, Japan, which has approved the allocation of $13bn in subsidies to the semiconductor industry, and India, which is working on establishing its own semiconductor manufacturing system.

In comparison, Intel alone has announced a $33bn investment in Germany. There are also major expansion plans at other leading companies, including Taiwan Semiconductor Manufacturing Company (TSMC), which accounts for 90% of the world's most advanced chips and is setting up new factories in Germany and Japan in addition to its investments in Arizona.

Samsung is also building a new $17bn semiconductor chip plant in Texas and is spending several times that amount to expand semiconductor manufacturing in its home country of South Korea.

Arm Holdings of the UK stands out as another major chip company. Its shares have risen by about 60%, and its market value has doubled to $125bn since it was listed on the NASDAQ stock exchange last September, driven by increased demand for smart chips. Arm's performance has been mirrored by that of its Japanese backer, SoftBank, which owns 90% of its shares.

After suffering a loss of $5.2bn, SoftBank bounced back, reporting profits of $6.4bn in the third quarter of the company's fiscal year ending in late 2023.

The bank has investment projects in artificial intelligence estimated at $100bn, including semiconductor manufacturing, as well as in companies like OpenAI, which generated returns of $2bn last year, and iPhone for AI.

Governance

Amid the billions and trillions at play, it is worth noting OpenAI CEO Sam Altman's announcement of his intention to attract $7tn in investments from investors, including from the United Arab Emirates, to establish microchip factories. This is another aspect to consider, especially if we include governance as an evaluation criteria.

Optimists see artificial intelligence as an unprecedented opportunity to discover a robotic mind capable of providing solutions to the problems of a planet mired in the chaos of war, famine, and climate change. However, those who control this technology and its cybersecurity are the ones who originally caused all the chaos.

Therefore, it seems unlikely that rosy picture of a promised land will come true. Instead, there is concern that we will misuse AI just as we have abused our available resources throughout history.

Smart digital capitalism

We are likely in the process of transitioning from economic capitalism as we know it, with its advantages and disadvantages, to what could be termed "smart digital capitalism".

Its dangers and the monopolies it may create could prove to be more painful and more brutal. They appear to be shaping up that way.

Whatever else, this a moment of great change. The spirit of the times were neatly captures on the sidelines of the American European Trade and Technology Council last month.

There, US Commerce Secretary Gina Raimondo said: " We have to work with each other. We shouldn't compete against each other. We can't allow companies to play us off one another." Her words seem either naive – or cunning.