Opinion
We must focus on semiconductor chip manufacturing to get ahead in the GenAI race
Summary
- The future of AI technology is being shaped not just by code and software, but by semiconductor chips. Strategic partnerships with East Asian hardware firms, equity stakes in semiconductor companies and involvement in the global hardware supply chain should be prioritized.
In the GenAI era, hardware is having a moment. While companies in East Asia surge ahead in semiconductor manufacturing, many in Silicon Valley and India remain rooted in the belief that companies making software—or what we deem as the application layer—and those investing in it will continue to dominate this technology beyond the current aberrant phase.
This belief is at odds with reality. The future of technology is being shaped not just by code, but by chips, and failing to recognize this could risk more than investment gains.
Consider Taiwan Semiconductor Manufacturing Company (TSMC), a near $900 billion giant, posting 45% monthly revenue growth. MediaTek, collaborating with Nvidia on a new top-tier processor, is seeing similar growth at 44%.
Meanwhile, Samsung and SK Hynix in South Korea are experiencing a surge in chip revenues of over 80%. These numbers reflect a structural shift to hardware, particularly semiconductors, as the new engine of innovation.
Yet, many traditional application layer beneficiaries do little other than point to history and assume this as nothing but another cycle. In Silicon Valley, there’s a deep-seated belief—or perhaps hope—that this hardware surge will soon return to the status quo where software reigns supreme.
A famously optimistic investment house called the hardware surge a ‘bubble’ on the rough premise that historically every dollar of revenue from upstream hardware led to more than $5-6 downstream, and since this cannot be foreseen now, today’s path is unsustainable.
However, this perspective risks repeating the mistakes of Detroit, a city that once symbolized industrial prowess but failed to adapt to global shifts, leading to its decline.
We will discuss the commoditization risks for software from machines mastering human languages in other articles, keeping the focus here on the ascent of hardware.
In India, the country’s engineers and business leaders must continue to assess the risks from a change in the hardware-software balance, even if they do not believe in a shift as much as I do.
The case for strategic hardware investments: For both Silicon Valley and India, the need to rethink their approach to tech investments is urgent. Strategic stakes in hardware companies, particularly those in semiconductor making, are becoming increasingly valuable.
The dominance of TSMC and Samsung in chip fabrication and ASML’s lead in extreme ultraviolet (EUV) lithography underline the critical role of hardware in the future of technology. These companies have built technological barriers that are nearly impossible to breach, making them indispensable to the tech ecosystem.
Indian business groups, traditionally focused on software and services, therefore need to broaden their investment horizons. Strategic partnerships with East Asian hardware firms, equity stakes in semiconductor companies and a deeper involvement in the global hardware supply chain should now become priorities.
Also read: India’s first semiconductor fab to begin production in 2026
The recent collaboration between Nvidia and MediaTek is a rare but powerful example of what can be achieved when software and hardware giants come together. Indian businesses should take note and seek out similar alliances.
An expected shift in engineering focus: India’s engineering talent, long celebrated for its contributions to global software development, must also pivot. The next wave of tech innovation will require engineers who are as adept at chip design, robotics-related manufacturing and semiconductor technology as they are at writing software code.
Indian educational institutions and tech companies need to invest in upskilling their expertise in these areas. The rise of GenAI, robotics and mobility technologies is driving demand for advanced semiconductors, and India has the potential to play a significant role in this space if it acts now.
The strategic imperative of looking East: Chips are the new oil. In semi-manufacturing, innovations are cumulative. Individually, thousands of tiny process advancements occur on the shop floors of such factories.
It’s not glamorous research, but their collective power makes it insurmountable for anyone to join midway without walking similar paths through previous-generation processes.
In effect, for the best semiconductor investments to come to India quickly, Indian business groups must strive for board seats and ownership stakes in the world’s companies in charge of critical technologies, like they pursued ownership in strategic assets in commodities earlier.
Indian companies can benefit from a cost-of-capital advantage, and the valuation edge they have over their peers elsewhere should be used for long-term purposes.
While businesses pursue such assets, Indian regulators must encourage their hardware pursuit through appropriate relaxations in external investment guidelines.
Also read: India’s semicon capacity could touch 1.8 lakh wafers per month: Rajeev Chandrashekhar
One example of a valuation gap could illustrate the point. Hyundai Motor, along with other group companies, owns most of Boston Dynamics.
Its Indian unit alone may fetch a valuation comparable to the parent group. For investors with access to risk capital from India, strategic global acquisitions could provide ample benefits for India’s long-term growth story.
