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A computer chip with the letters AI on top of it.
How China smuggles sought-after chips
The US has placed strict limits on the sale of powerful chips to China. But in the underground electronics market in Shenzhen, the southeastern port city, vendors reportedly claim to be moving hundreds or even thousands of banned chips. These include Nvidia’s A100 and H100 series chips, their most advanced models.
One vendor said he arranged a $103 million shipment to a nearby warehouse. “The Shenzhen market cannot be restricted,” he told the Times. That these middlemen are getting their hands on powerful chips is a serious threat to US economic and national security priorities, as the Biden administration is dead set on limiting Chinese access to any technologies that can fuel the government’s AI ambitions. Commerce Secretary Gina Raimondo said recently that she’s under “no illusions” that her department is executing their goals perfectly and told the Times she’s limited by budget constraints.
A Chinese military with artificial intelligence at its fingertips is a nightmare scenario for the US, and while its export controls have limited what China can make, it might never be able to fully plug leaks in the mechanism.A photo illustration of a smartphone displaying the NVIDIA Corporation stock price on the NASDAQ market, with an NVIDIA chip visible in the background.
A chip bottleneck
Margrethe Vestager, the European Union’s competition chief, has warned of a “huge bottleneck” involving Nvidia. The US semiconductor company plays a pivotal role in designing chips necessary for training and running artificial intelligence models and applications — good for 80% of the market. In recent months, Nvidia has become a $3.1 trillion company — now the third-most-valuable firm in the world behind only Microsoft and Apple.
It’s too much of a good thing: NVIDIA’s chips are so in demand that it can’t make enough for AI firms looking to train bigger and better models. EU regulators are starting to wonder whether that bottleneck raises concerns over fair competitive markets.
In Singapore, Vestager told Bloomberg that the EU’s watchdogs are asking preliminary questions of Nvidia but haven’t made up their mind about any further regulatory steps. Vestager said a robust secondary market could relieve competitive concerns, implying that as long as Nvidia respects smaller firms it should stay in antitrust regulators’ good graces. Meanwhile, AMD and Intel are looking to close the gap with Nvidia, something that intense regulatory scrutiny on the market leader might aid.
US Secretary of Commerce Gina Raimondo announces a major grant at the Samsung semiconductor plant in Taylor, Texas, on Monday, April 15, 2024.
Samsung hands Biden another chip win
The Biden administration is busy courting global semiconductor manufacturers to build stateside, recently handing billions to Taiwan Semiconductor Manufacturing Company to expand its chip fabrication plant in Phoenix, Arizona.
On Monday, Commerce Secretary Gina Raimondo announced that the Biden administration is giving out another award as part of its CHIPS Act budget — this time to TSMC competitor Samsung, the South Korean electronics giant. Samsung will receive $6.4 billion to put toward its new manufacturing hub in Taylor, Texas, and expand its existing plant in Austin. In return, Samsung will pour $45 billion into its US projects and commit to producing cutting-edge two-nanometer chips.
Biden has made so-called silicon nationalism a tenet of his economic and national security-focused public policy, desperate to control the slow but crucial supply of chips used for everyday technologies as well as new artificial intelligence applications.
The logo of OpenAI is seen displayed on a mobile phone screen with the Nvidia logo in the background.
The rise of AI giants (and their challengers)
Two winners have emerged from the AI boom’s first year, but others are in hot pursuit.
Within a few days of ChatGPT’s launch on Nov. 30, 2022, the chatbot attracted millions of users, proving that the world was ready for consumer-grade AI. This made OpenAI, the parent company, a clear victor on the software front. On the hardware front, NVIDIA grabbed the spotlight. The company’s graphics-processing chips have become the industry standard for fueling powerful AI models, making NVIDIA a trillion-dollar company this year.
Wannabe contenders, however, are trying to catch up.
Last week, Google launched Gemini, its much-anticipated new AI model, which it integrated into its Bard chatbot, boasting about “multimodal reasoning capabilities.” Google, already the industry leader in so many internet sectors — search, advertising, online video, and more — wants Gemini to challenge OpenAI’s large language model, GPT-4, on which ChatGPT is built.
Gemini, an umbrella for three models functioning at different levels, will also be added to Android mobile devices, the Google search engine, and Chrome. Google CEO Sundar Pichai told The New York Times that there’s room for more than one top AI company: “It’s so far from a zero-sum game.”
Meanwhile, US chipmaker AMD has NVIDIA in its crosshairs. Last week, AMD announced a new series of chips specifically for AI. The new chips, called MI300, are meant to rival NVIDIA’s H100 series. Microsoft plans to use the new AMD chips to power some of its Azure-branded cloud computing services, and Meta wants to use them for its data centers.
In these parallel races for AI domination, there’s only one sure winner: the United States. There are plenty of top tech companies competing for dominance of the buzziest industry of the moment, but so many of them — OpenAI, Google, NVIDIA, and AMD — are based in the US. As we chronicled last week, Washington stands to benefit in countless ways.Federal Chancellor Olaf Scholz on stage at the Digital Summit 2023 in November.
Wie sagt man: Not cheap as chips?
It committed $10 billion for Intel, which is building factories in Magdeburg; $5 billion in subsidies for a new fabrication plant built by Taiwanese giant TSMC along with Dutch company NXP, and German firms Bosch and Infineon. German Chancellor Olaf Scholz even noted in July how impressive it was that “so many German and international companies are choosing Germany for the expansion of their semiconductor production.”
But last month, a German court ruled that Scholz’s government violated its constitutional powers when he moved $65 billion in unused funds earmarked for the COVID-19 pandemic to the “climate and transformation” fund. The bad news for chipmakers? That was the money earmarked for their subsidies.
Germany wants to position itself as particularly friendly to industry, not only courting multinational tech corporations willing to build manufacturing plants, but also — in a recent shock move — by throwing a wrench in EU plans to heavily regulate large language models like OpenAI’s GPT-4.
Trouble is, to run the high-powered AI models, developers need high-powered chips – whatever the cost.
What country will win the AI race?
Art: Courtesy of Midjourney
Savvy startups, tech giants, and research labs woo the best engineers and financing to fuel technological breakthroughs. But the battle for AI supremacy is much bigger than the industry itself – it's a global contest, pitting nations against each other.
Many of the world’s most powerful governments are flexing their muscles to build a competitive edge by cultivating robust domestic AI sectors. Don’t be fooled into thinking that recent efforts to legislatively rein in AI models and the companies behind them are signs of governments hitting the brakes – it’s quite the opposite.
Why, you ask? Because it’s a boon for any country to attract top talent and spur economic activity, says Valerie Wirtschafter, a fellow at the Brookings Institution’s Artificial Intelligence and Emerging Technology Initiative. Hosting top AI companies also “inevitably catapults host countries to the forefront of conversations around standards and governance, both domestically and internationally.”
Beyond that, a thriving AI sector can do wonders for national security. That’s true not only for military and intelligence applications or research-and-development, but also for ensuring that standards of development “do not pose an inherent risk and are developed with a certain set of values in mind,” Wirtschafter says.
Since Google, Microsoft, and OpenAI call America home, Washington has the ultimate power play. It can better control these tech giants and set the vibe for worldwide AI regulation.
Such control sets governments an inch closer to technological sovereignty, says Nick Reiners, a senior analyst for geotechnology at Eurasia Group: “Having these companies in your country means you’re not dependent on another country.”
Governments can boost their AI sectors in numerous ways — through subsidies, research funding, infrastructure investment, and government contracts.
“Defense spending and government R&D has always been a big stimulus for civilian and commercial research and product development,” says Scott Wallsten, president and senior fellow at the Technology Policy Institute, a Washington-based think tank. “You can be sure the DOD is working on these tools for their own purposes because they’re in an arms race with potential adversaries.”
Who’s ahead? The US and China are way out in front. “While in the US, these advances have been primarily driven by the private sector, in China they have been shaped more by government support,” says Wirtschafter. But she notes that the US CHIPS Act is a sign that America is trying to boost its strategic advantage.
Stanford University’s annual AI Index report found the US and China leading in many different ways, including private investment and newly funded AI firms. (The UK, EU, Israel, India, and Canada also rank highly in many of the report’s metrics.)
While it’s unlikely that anyone will challenge the US and China, and the US is ahead, Wirtschafter notes that China is powerful on facial recognition technology.
Could governments get possessive? Yep, this is a high-stakes game, and Washington and Beijing, among others, could increasingly opt for protectionist measures to keep powerful AI models in their grasp.
The US is already doing this with chips, the underlying technology for AI. Washington exerts strict export controls over any semiconductor-related equipment, lest it get into enemy hands – meaning China. It has also blocked corporate takeovers that could shift the balance of power with chips, including a 2018 deal involving US chipmaker Qualcomm (keeping it from a Singapore-based company’s grasp). And a new report indicates the Biden administration forced a Saudi firm to divest from a US chipmaker linked to OpenAI CEO Sam Altman.
If the US and other governments determine that protecting powerful AI models is key to their national security, they could take similarly drastic measures to keep them domestic — or at least in the hands of allies. Just last week, Bloomberg reported that the London-based AI startup Stability AI, known for its Stable Diffusion image generator, is exploring a sale amid internal turmoil. The company reportedly reached out to two startups — the Canadian company Cohere and the US-based Jasper — to gauge their interest in a sale. There’s no indication yet that regulators are worried, but the potential corporate shakeup comes as British politicians have been desperately trying to make the UK a friendly place for AI firms.
The last thing the UK wants is to get burned again – like it did with DeepMind and Arm, two promising British AI companies that were acquired by US and Japanese firms in 2014 and 2016, respectively. In a recent interview with the BBC, Ian Hogarth, who is leading the UK’s AI taskforce, spoke of the need to boost European technology companies instead of allowing them to be sold. “We've had some great tech companies and some of them got bought early, you know – Skype got bought by eBay, DeepMind got bought by Google,” Hogarth said. “I think really our ecosystem needs to rise to the next level of the challenge.”
British lawmakers passed the National Security and Investment Act in 2022, granting the government new national-security powers to intervene in the foreign acquisition of domestic companies. “The pace of change has been really significant since that period,” Wirtschafter said of the DeepMind acquisition, “and the desire to maintain a competitive national position in this space would be central to any potential sale.” The UK’s National AI Strategy, published in 2021, says that the government will “protect national security” and protect against “potentially hostile foreign investment.”
But ministers are now considering rolling back those new rules to appear more business-friendly. And that’s the central tension that all AI-hungry countries face: They need to appear AI-friendly while trying to be forceful with regulation. The battle for AI supremacy is on the line.