The pace at which the AI boom was expected to pan out this year has come under scrutiny as energy markets are rattled by the war in the Middle East. Semiconductor stocks have experienced high levels of volatility since Israel and the U.S. attacked Iran, and there are concerns that if the war drags on for much longer, the AI industry could suffer significant setbacks.
Already, major players in the semiconductor industry like Taiwan Semiconductor Manufacturing Co., SK Hynix and Samsung Electronics have seen the prices of their stocks shed between 9% and 22% during the first week of the Iran conflict. This reaction shows that investors are concerned about the likely adverse effects of the war on supply chains. Rising energy costs also pose a risk that investors are wary of.
Phelix Lee, an analyst focusing on equities at Morningstar, penned a note on Tuesday explaining that as oil prices soar, data centers could face higher operational costs and this could impact the pace at which new AI infrastructure is constructed.
He adds that as LNG prices also climb, semiconductor fabs located in South Korea and Taiwan could incur higher costs, which would in turn put upward pressure on semiconductor product prices. Qatar is the largest exporter of LNG, and the country has halted operations at its largest export facility. This has squeezed global supplies of liquefied natural gas and triggered a rise in prices.
Helium, a key input in semiconductor manufacturing, is obtained as a by-product during LNG production. Qatar supplies approximately 30% of the helium used around the globe, and the production disruption triggered by the Iran conflict is having a ripple effect on global helium prices.
When supplies of helium and other needed inputs like bromine are constrained for much longer, semiconductor fabs that may be initially absorbing those added costs could be compelled to raise product prices to pass these costs to the firms buying their products. Given that demand for AI products is currently high, customers may have little choice other than to still compete for the products reaching the market.
If supplies continue to be constrained, production may end up being scaled back or even halted if the worst comes to the worst. It is therefore not surprising that investors are concerned about events in the Middle East since the instability is also impacting shipping. Constrained access to needed materials to build-out AI infrastructure could also affect the growth of the industry.
The situation is fluid, and leading AI companies like Microsoft Corp. (NASDAQ: MSFT) are probably watching the developments in the Middle East very closely and assessing how they could impact their operations.
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