A Trillion-Dollar AI Market: Bain Anticipates AI Explosion

According to Bain & Company, the AI market is expected to surge to almost US$1tn by 2027.

With the market for AI and its hardware continuing to expand, the company’s fifth annual Global Technology Report indicates that it will continue to grow to 40-55% a year and lead to revenues between US$780bn to US$990bn.

The report examines AI and its “sweeping impact” on industry structure, enterprise value, data centres and business opportunities, amongst other areas. 

“The pace of technological change has never been faster, and senior executives are looking to understand how these disruptions will reshape the sector,” the report says. “Generative AI (Gen AI) is the prime mover of the current wave of change, but it is complicated by post-globalization shifts and the need to adapt business processes to deliver value.”

Getting the most out of AI

In 2024, the technology sector moved into the AI phase of computing, sparking overwhelming customer demand and greater pressures on data centres to deliver. Businesses like cloud service providers and technology vendors are spending more on AI than ever before, leading to increased adoption rates of the technology. 

Such dramatic AI growth will also be fuelled by more complex AI systems and larger data centres, which will train and run the AI. This transition will be driven by companies and governments who are using the technology to boost efficiency.

“Demand is rising so fast that it’ll strain supply chains for components, including chips needed to run the services,” Bain notes in its report. “Combined with geopolitical tensions, rising sales could trigger shortages in semiconductors, personal computers and smartphones.”

AI chips have been short in supply in 2024, as companies scramble to get their hands on the latest technology to remain competitive. Countries like the United States have invested billions of dollars in semiconductor-related research and development to reduce time-to-market for new technologies.

In this way, Bain indicates that this level of demand for upstream chip components could rise by 30% or more by 2026. This will put greater pressure on manufacturers, the company states, in addition to the cost of larger data centres jumping from US$1bn to US$4bn to as high as US$10bn and US$25bn in just five years as their capacity expands.

“These changes are expected to have huge implications on the ecosystems that support data centres including infrastructure engineering, power production, and cooling,” the consultancy notes.

However, Bain is quick to point out that some are sceptical over if AI will be able to offer a high return on investment (ROI). In fact, the organisation suggests that creating value with AI is not just in the technology alone, but it also requires changes to working processes across an organisation.

As a result, organisations will need to confront possible talent gaps and re-evaluate their AI strategies moving forward. 

Confronting an AI chip shortage 

Just as the pandemic created a surge in PC demand, the next wave of AI-enabled devices will likely accelerate smartphone and PC upgrade purchases, according to Bain.

These trends, alongside geopolitical tensions and risks to supply chains, could trigger the next semiconductor shortage. As a result, the report suggests that enterprises will need to be proactive to mitigate impact, suggesting solutions such as long-term purchase agreements and diversifying their supply chain.

“The supply and demand of semiconductors is a delicate balance that can be quickly shaken,” Bain says in its report. “Executives are starting to prepare for the next potential crunch caused by AI.”

Ultimately, accelerating AI across industries will inevitably put pressure on the supply of graphics processing units (GPUs) for data centres. As demand continues to soar for computing resources to train and operate large language models (LLMs), increased purchases have major implications for the global semiconductor supply chain.

In particular, Bain cites the breakthrough of Gen AI in 2022 as causing the semiconductor industry to swell. Sales continue to rise enormously, with organisations like Nvidia and AMD reaping the benefits. 

As a result, major cloud service providers are showing no signs of slowing down, eager to expand their investments into AI and accelerated computing. This contributes further to expanding data centre demands, with Bain citing that - if GPU demand doubles by 2026 - suppliers of key components would need to increase their output by 30% or more.

“Leading companies will apply lessons from the most recent chip crunch to keep their inventories safely balanced between shortages and gluts,” the report says.

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