Commodity IQ Demand Index Rebounds in July, But AI Bubble Raises Concerns

In another sign of renewed strength in the electronic components market, the Supplyframe Commodity IQ Demand Index rose by 8% sequentially in July, ending a three-month period of decline. However, the overall index remained nearly 20 points below the 2020 baseline, indicating that sales have not yet recovered to the robust levels seen four years ago.

The rise in July was broad-based, with 89% of components notching increases on the index. Many major product categories attained marked growth, with a 17% sequential increase in sourcing actions for RF and microwave devices, a 14% expansion for lithium-ion batteries, an 11% upswing for standard logic, and a 10% gain for resistors.

Global Electronic Components Sales on the Rise

The upturn in the index across all electronic component commodities by 7.7% comes amid a rising tide of positive indicators for electronics demand.

The Semiconductor Industry Association (SIA) reported on August 5 that global chip industry sales rose to $149.9 billion during Q2, up 18.3% year-over-year and a 6.5% increase compared to Q1. Meanwhile, the July ECIA Electronic Component Sales Trend (ECST) survey showed that industry sentiment rose 4.5 points to 103.4, just above the trend baseline.

With July marking the beginning of the Q3 peak electronics season, electronic component demand is partly propelled by escalating product sales, including smartphones and PCs. The global PC and smartphone segments are expected to generate shipment growth in the mid-single digit percentages this year following significant declines in 2023. AI-equipped PCs and smartphones are expected to experience sales acceleration into Q1 2025.

However, the AI sector is the primary factor propelling growth in component demand, with the ChatGPT craze spurring soaring demand for GPUs and high-bandwidth memory (HBM) used in data center servers. While demand from the AI sector is expected to continue to increase, some concerns have arisen regarding the sustainability of the current boom’s pace, as evidenced by the sharp emotionally-driven stock market slump this week.

Will the AI Market Bubble Pop?

Despite massive investments in AI infrastructure in pursuit of expected productivity enhancements, there are questions about the actual value delivered by artificial intelligence. Speculation that the AI market bubble could pop soon, resulting in a catastrophic downturn in component demand, similar to the dot-com bubble collapse in 2001, when global semiconductor sales plunged by 32%.

The first sign of the dot-com bust came as order cancellations for chips used in internet infrastructure. Industry association figures do not show a marked cancellation trend in July.

Despite mounting concerns, analysts remain bullish on the outlook for the AI boom, with the current hypergrowth phase in AI data center equipment continuing until 2026, according to multiple market researchers.

With demand set to continue to increase and perhaps even approach 2020 levels in the coming months, buyers should prepare for more challenging purchasing conditions. At the same time, buyers need to watch the demand situation for data center AI chips and prepare for purchasing opportunities that may arise if demand downshifts in the AI segment.