BCG reports a complex market of innovation, geopolitical tensions & strategic challenges in the race for AI dominance, with the US & China leading.
A complex situation is emerging in the development and production of AI chips.
Whilst AI chips power everything from large language models to autonomous systems, the increasing demand of AI paired with geopolitical divides is putting the chip market under pressure.
The traditional technological divide between East and West is becoming increasingly pronounced in this sector, with the US and China establishing themselves as the main forces in the global AI chip supply chain.
However, approaching this challenge, Boston Consulting Group (BCG) has highlighted a growing concern in the EU and UK: that despite these countries expertise in AI research and development, they face hurdles in translating AI knowledge into tangible manufacturing capabilities, which is particularly problematic given the EU’s Digital Decade strategy and the UK’s post-Brexit goal to become a science and technology superpower.
This means that as AI increasingly becomes the cornerstone of economic competitiveness, national security and technological sovereignty, the concentration of AI chip production capabilities in the East and the West raises strategic concerns for European policymakers.
US maintains lead in AI chip development and investment
The US is poised to maintain its dominant position in the global AI chip market over the next decade.
KEY FINDINGS:
- US leads in LLM development with 57% of top LLMs linked to US entities and GenAI startups attracting US$65 billion in investment since 2019
- China has strong data centre infrastructure and talent pool, yet chip access limitations may slow but not halt progress
- EU lags behind by struggling with infrastructure scaling and facing significant funding gap compared to US and China
- Canada and UK emerge as AI research powerhouses as they’re home to top AI scholars, produce notable AI models and produce influential research papers
According to BCG, the US AI chip market is estimated to grow at a CAGR of 26.5% through 2034.
This robust growth is driven by the presence of major technology companies and significant investment in AI research and development.
BCG notes that North America, led by the US, will remain the largest regional market for AI chips.
The growing deployment of AI technology in the information technology sector is cited as a key factor propelling market growth in North America.
Additionally, the concentration of prominent tech firms in the US is boosting demand for advanced AI processors in the region.
China emerges as major player in AI chip production
BCG also identifies China as a significant contributor to AI chip market growth in the Asia Pacific region.
China’s role is attributed to the presence of major chip manufacturers within its borders and its rapidly developing tech industry.
The research suggests that China’s AI chip market is expected to grow at a CAGR of 27.2% through 2034 and this growth is driven by the country’s digital transformation and increasing integration of AI capabilities across various sectors.
European market sees rapid AI chip adoption
Europe is further highlighted as a fast-growing region in the global AI chip market.
BCG attributes Europe’s rapid adoption of AI chips to increasing implementation of AI technology in the automotive and healthcare sectors.
The UK, in particular, is expected to see its AI chip market grow at a CAGR of 28% through 2034.
The research suggests that Europe’s growth in the AI chip market is supported by substantial funding programmes and collaborative projects aimed at enhancing AI capabilities across the region’s tech industry.
UK, Canada and Israel: AI research powerhouses
Canada and the UK are also noted for their significant contributions to AI research and development.
Both countries are home to a sizable share of the world’s top AI scholars and have produced many notable AI models.
While specific market figures were not provided, their strong AI talent pools and research output position them as important players in the global AI chip landscape.
Additionally, Israel, despite its smaller size, is recognised for its high concentration of AI talent and its contributions to AI chip development.
The country’s AI specialists have enabled the development of several top-performing large language models.
Gulf nations invest heavily in AI infrastructure
Furthermore, Saudi Arabia and the UAE are leveraging their substantial sovereign wealth funds to rapidly grow their AI capabilities.
Saudi Arabia has committed US$40bn to AI development, while the UAE has launched a US$10bn AI venture capital fund.
BCG reports that both nations are focusing on expanding their data centre capacity and developing high-performing AI models.
Asian tech giants drive AI chip innovation
Finally, Japan and South Korea are building on their established tech ecosystems and expertise in hardware to position themselves as significant players in the AI chip market.
Japan’s AI chip market is expected to grow at a CAGR of 28.2% through 2034, while South Korea’s market is anticipated to expand at a 27.6% annual rate.
South Korea benefits from its strong position in semiconductor manufacturing, while Japan has fostered partnerships among corporate, academic and governmental institutions to accelerate AI model development.
Nikolaus Lang, global leader of the BCG Henderson Institute and a co-author of the report, notes: “For corporate leaders who are integrating GenAI into their business operations, relying solely on GenAI supplied by companies in the US or China could pose serious risks due to the possibility of regulations, data requirements and availability of the models all being vulnerable to shifts in government policy.”
