Supply chain cracks constrain AI boom
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The AI economy is being constrained by the physical world: The Iran war threatens to squeeze the industrial inputs that chip manufacturers depend on, the latest confirmation that once-reliable global chokepoints are now more fragile than ever.
Why it matters: It is part of a growing pattern defining the economic conditions of the 2020s: shocks exposing the fragility of supply chains that the world took for granted.
- The AI buildout is the latest to be throttled by this trend — in this case, the effects of an uncertain Middle East conflict and the Strait of Hormuz's effective closure.
What they're saying: "Hyperscalers are committing roughly $650 billion to U.S. AI infrastructure this year alone. And that investment assumes the supply chain holding it together remains intact," Moody's David Pan tells Axios.
- "The AI economy runs on tokens, tokens run on GPUs and GPUs depend on Qatari helium, Israeli bromine, and [liquefied natural gas] tankers with a single, 21-mile-wide exit from the Persian Gulf," Pan adds.
Zoom in: In a note this week, Moody's Ratings flagged the disruptive effects from a shortage of helium, critical for chip production.
- Iranian attacks last month on Qatar's Ras Laffan complex — the source of about 30% of the world's helium supply — left a major supplier saying it can no longer fulfill its contracts.
- Even when the strait reopens and the global flow of critical inputs can resume, damage from the strikes means that helium production can't immediately restart.
- As recently as last year, the helium market was in surplus, with supply outpacing demand and prices falling. The Iran war flipped that dynamic, disrupting Qatari production and pushing spot prices sharply higher.
The big picture: Moody's Ratings notes that critical buffers — stored helium, long-term contracts, recycled gases — buy time for semiconductors. But the underlying problem sticks: The physical backbone of the AI economy runs through a region at the center of an uncertain conflict.
- Another complication: AI data centers run on electricity, which heavily depends on natural gas. Roughly 20% of global liquefied natural gas moves through the strait, although the closure of the waterway has created a new bottleneck with no clear relief in sight.
- President Trump earlier this week extended the ceasefire with Iran. That nation's lead negotiator, Mohammad Bagher Ghalibaf, posted Wednesday on X that "reopening the Strait of Hormuz is impossible with such a flagrant breach of the ceasefire," referring to the U.S. naval blockade.
What to watch: The AI investment boom is also generating demand-driven price pressure on the physical components that the buildout depends on.
- In a recent note, BlackRock says that global spending on data centers and defense is spurring a type of demand not seen in the chip supply chain issues in the early 2020s.
- "Recent commentary on microchip prices has tended to apply a supply side framing that we view as misplaced. Instead, we see exponential price rises as a natural outcome of exponential demand," BlackRock portfolio managers Simon Wan and Tom Becker wrote in a note titled "The Macro Implications of Chipflation."
The intrigue: They added that prices for these components have risen 17-fold over the past year, a sharp break from multidecade cost declines.
- "Whereas the 2020 jump in microelectronics prices were primarily attributable to supply chain disruptions, we now see a booming global industrial cycle generating excessive demand."
