SMIC warns rushed AI chip capacity buildout risks idle data centers

China's top chipmaker has warned that breakaway spending on artificial intelligence chips is bringing forward years of future demand, raising the risk that some data centers could sit idle. Semiconductor Manufacturing International Corp co chief executive officer Zhao Haijun said companies would love to build 10 years worth of data center capacity within one or two years. As for what exactly these data centers will do, that has not been fully thought through, he said on a call with analysts. Moody's Ratings projects that AI related infrastructure investment would exceed US$3 trillion over the next five years, as developers pour sums into data centers to house training and inference chips designed by companies including Nvidia Corp, Advanced Micro Devices Inc and Huawei Technologies Co. This year alone, the combined capital expenditure of Alphabet Inc, Amazon.com Inc, Meta Platforms Inc and Microsoft Corp is on track to reach US$650 billion, driven by their AI arms race. China's leading AI developers, including Alibaba Group Holding Ltd, Tencent Holdings Ltd and ByteDance Ltd, are also investing heavily in AI infrastructure equipped with both Nvidia chips and domestically produced alternatives. SMIC operates chipmaking plants from Beijing to Shanghai and Shenzhen, but it can only manufacture less advanced AI chips compared with those produced by Nvidia and its contract manufacturer, Taiwan Semiconductor Manufacturing Co, due to US export restrictions that limit access to cutting edge equipment. The surge in spending has also triggered a shortage of high bandwidth memory, a critical high end component that enables advanced AI computing. The tight supply of high bandwidth memory could persist for years, as new capacity takes time to build and qualify, Zhao said. SMIC's domestic clients, including Huawei and Cambricon Technologies Corp, are aiming for a rapid ramp up of their silicon production to meet China's AI needs. It is like building high speed rail stations and highways. Even if there are not that many cars today, you still want to complete 10 years worth of infrastructure in just two years, Zhao said.