TheChek News Flow

GPUs will always have a critical role to play in AI computing, but as models mature, there’s a growing opportunity for more custom chips

Future computer chips may be able to help ease the alarming energy demands of generative artificial intelligence, but chip makers say they need something from AI first: a slowdown in the sizzling pace of change.

Graphics processing units so far have dominated the bulk of training and running large-scale AI models. The chips, originally built for gaming graphics, offer a unique blend of high performance with the flexibility and programmability required to keep up with today’s constantly shifting swirl of AI models.

Nvidia’s dominance in the GPU market has propelled it to a trillion-dollar valuation, but others, including Advanced Micro Devices, also make the chips.

As the industry coalesces around more standardized model designs, however, there will be an opportunity to build more custom chips that don’t require as much programmability and flexibility, said Lisa Su, chief executive at AMD. That will make them more energy-efficient, smaller and cheaper.

“GPUs right now are the architecture of choice for large language models, because they’re very, very efficient for parallel processing, but they give you just a little bit of programmability,” Su said. “Do I believe that that’s going to be the architecture of choice in five-plus years? I think it will change.”

What Su expects in five or seven years’ time isn’t a shift away from GPUs, but rather a broadening beyond GPUs.

Nvidia and AMD haven’t been vocal around specific plans here. Nvidia declined to comment for this article.

Some custom chips are already hard at work handling aspects of AI.

Large cloud providers like Amazon.com and Google have developed their own custom AI chips for internal use, such as Amazon’s AWS Trainium and AWS Inferentia, and Google’s tensor processing units, or TPUs. These are built to execute only specific functions: Trainium can only train models, for example, while Inferentia can only run inference, a less intensive process than training in which models process new information and respond.

Broadcom CEO Hock Tan said in an internal address this year that his company’s custom chip division, which mostly helped Google make AI chips, was bringing in over $1 billion in operating profit a quarter.

Custom chips can be far more energy efficient, cheaper and smaller because they can be hard-wired to a given degree: they can perform one specific function, run one specific type of model or even one specific model itself, said Shane Rau, research vice president for computing semiconductors at market intelligence firm International Data Corp.

But the market for commercially selling these super-custom, application-specific chips is still immature, Rau said, a symptom of how much innovation is happening in AI models.

Highly customized chips also present a challenging lack of flexibility and interoperability, said Chirag Dekate, a vice president analyst at research firm Gartner. To the extent that they are programmable, they’re very difficult to program, typically requiring custom software stacks, and it can be difficult to make them work with other kinds of chips.

Many chip offerings today exist on a continuum, however, with some GPUs that can be more customized and some specialized chips that provide a level of programmability. That gives chip makers an opportunity, even before generative AI becomes more standardized. It can also be a conundrum.

“That’s a big thing we’ve struggled with here,” said Gavin Uberti, co-founder and CEO of Etched. The startup makes chips that do inference only on the transformer architecture, developed by Google in 2017, that has since become the standard for large language models. Despite customizing up to a certain point, the chips also have to be flexible enough to adapt to smaller operations that vary model to model.

“Right now, the models have plateaued enough that I think making a bet on the transformer makes sense, but I don’t think making a bet on say, Llama 3.1 405B makes sense yet,” Uberti said, referring to an AI model from Facebook owner Meta Platforms. “Transformers are going to stick around, but they’re going to keep getting bigger and evolving.” He added, “You do have to be careful to not overspecialize.”

There is also no one-size-fits-all when it comes to computing, said Su, the AMD CEO. AI models in the future will use a combination of different types of chips, including today’s dominant GPUs and also more specialized chips still to be developed, for various functions.

“There will be other architectures,” she said. “It’s just that it’ll depend on the evolution of the models.”

Militant group says it targeted Iron Dome developer and airbase; dozens of Israeli warplanes strike southern Lebanon

Israel and Hezbollah accelerated their cross-border attacks overnight into Sunday, in a rapidly deteriorating situation that has the adversaries as close to war as they have been in their nearly yearlong conflict.

Hezbollah said it targeted Israel’s Rafael Advanced Defense Systems—one of the developers of its Iron Dome air-defense system—on Sunday as part of the group’s initial response to the explosion of thousands of its communication devices, an attack attributed to Israel that killed over 30 people, including a number of civilians. The company is located near Haifa, about 15 miles from the Israel-Lebanon border. The Lebanon-based militant group also said it targeted Israel’s Ramat David air base, also near Haifa, with Syrian-made rockets. The Israeli military didn’t confirm the targets of the strikes but said Hezbollah had struck deeper than usual into Israeli territory.

Some 115 projectiles were fired from Lebanon into Israel on Sunday morning, the Israeli military said. Most were intercepted or fell in open areas, but Hezbollah landed three direct hits on Israeli communities, including two on residential buildings in the city of Kiryat Bialik, according to state-owned Army Radio. Videos circulating online and confirmed by the military show vehicles and buildings set ablaze, and emergency forces said four people were injured by shrapnel.

Three projectiles were also launched at Israel from the east, including two from Iraq, home to Iran-aligned militias, according to the Israeli military.

Dozens of warplanes broadly struck southern Lebanon on Saturday night and into Sunday morning, Israel’s military said, in what it called a pre-emptive attack against rocket-launching positions earmarked for a broader attack on Sunday morning.

The strikes follow a week of sharply rising tensions between Israel and the U.S.-designated terror group, raising U.S. concerns that the parties will drag the region into a broader war. Hezbollah initiated the current conflict with Israel on Oct. 8 as a show of support to Palestinian militant group Hamas after it launched the Oct. 7 attack in which fighters killed 1,200 people and took 250 hostage. But the tit-for-tat cross-border fire exchanges have gradually dialed up in intensity over recent months, as a diplomatic solution remains elusive.

Israel changed its strategy in the past week, ratcheting up the intensity and audacity of its strikes against Hezbollah, aiming for a decision point in the conflict, which has forced tens of thousands of civilians on either side of the border from their homes. On Friday Israel put more pressure on the issue, killing 16 senior Hezbollah members in Beirut, in an attack that Lebanon says also killed about two dozen civilians. Israel’s message is that either a solution must be reached or it will push on with the fighting, even into a war that is expected to be devastating to both sides.

“This is a situation that is intolerable and Israel is committed to act to change this reality,” Nadav Shoshani, an Israeli military spokesman, said on Sunday.

Move over copilots: meet the next generation of AI-powered assistants

Microsoft, Salesforce and Workday latest to centre their plans on ‘AI agents’ as technology advances

Move over, copilots: it’s time to make room for the AI agents.

That has been the message from the software industry in recent days, as some of the biggest companies have lined up behind the latest idea for how to turn generative artificial intelligence into a staple of working life.

Microsoft, Salesforce and Workday this week put agents at the centre of their AI plans, while Oracle and ServiceNow have also used the industry’s annual round of user conferences this month to promote the idea.

AI assistants known as copilots — a term first popularised by Microsoft — have become the software industry’s main response to the generative AI unleashed by the launch of ChatGPT nearly two years ago.

The latest wave of AI agents are designed to go further and take actions on behalf of users. While agents have become the newest front in the battle between tech giants like OpenAI and Google, they have also turned into the software industry’s latest attempt to sell generative AI to business customers.

The evolution reflects both an advance in the underlying technology, as well as a new marketing pitch from an industry looking to capitalise on a heavily hyped technology that has yet to have much impact on its revenues.

If the industry’s claims prove true, the move from AI assistants to agents could also open the door to a far more disruptive phase in the evolution of generative AI, both for workers affected by the technology as well as software companies themselves.

Behind the spread of agents — also widely referred to as “agentic” systems — lie a number of advances in the underlying technology since the first generative AI chatbots.

Greater memory enables the systems to retain a better understanding of context, while planning capabilities have advanced. Agents also often connect to other systems through APIs — application programming interfaces — meaning they can take actions on behalf of a user rather than just return information.

The latest wave of agents is designed to act as an extension of the copilots that came before rather than replace them completely. According to Microsoft CEO Satya Nadella, his company’s copilot software is evolving into an “enterprise orchestration layer”, a conversational interface through which workers will be able to create and use agents to carry out specific tasks.

Initially, AI agents are mainly being promoted as tools to take over simple, routine actions, like filling out an expenses report.

But some companies are already touting their ability to handle more complex tasks, or even take over some jobs completely. Automating customer support systems has been a main area of focus, potentially replacing large numbers of call-centre workers.

So far, generative AI has done little to lift the revenue growth of software companies.

The entire software industry is still in “‘show me’ mode on copilots or AI agents”, says Jim Tierney, a growth stock investor at AllianceBernstein. “It is still an open question exactly how this is going to be monetised,” he added.

Marc Benioff, chief executive of Salesforce, suggested there was a lack of traction for copilots, telling the FT: “Microsoft has deceived customers with their AI strategy, they don’t need to DIY it. We build it into our platform, customers shouldn’t be forced to train and retrain their models.”

The software companies are betting that customers will see direct productivity benefits in agents that can take on entire tasks.

According to Microsoft’s Nadella, as AI systems like these become increasingly capable, “models themselves become more of a commodity and all value gets created by how you ground, steer and fine-tune these models with your business data and workflow”.

As agents take on more of the workload, that could put companies like Apple, with its dominant smartphone platform, and Microsoft, with its desktop productivity apps, in the best place to win, said Tierney.

For now, the full implications of that shift are likely to be muted, as the tendency of generative AI systems to “hallucinate” makes users cautious about allowing them to take unsupervised actions.

“I’m sceptical, and even a little bit nervous” about the widespread use of agents, said Barry Briggs, a former chief technology officer at Microsoft and now an analyst at Directions on Microsoft, an independent research firm.

The probabilistic nature of the technology means that customers will not be able to use the technology for important tasks, but instead will have to build it into work processes that give workers the final say, he added.

Yet some companies already claim to be taking the technology to its logical conclusion. Last month Sebastian Siemiatkowski, CEO of Swedish fintech company Klarna, said his company was on the way to halving its workforce with AI.

Siemiatkowski also made waves in the software industry by saying Klarna would abandon Salesforce and Workday completely and instead use AI to develop the software it needs to run its business. That claim is widely seen as an outlier in the tech world given the current state of the technology, though it points to what some claim will be a far more disruptive future.

Most software investors, however, are betting the big winners will be the existing powers in the software industry — even if it is still unclear how or when the pay-off from technology will come.

As extensions of copilots, agents are merely the latest step in the attempt by today’s leading software companies to stake out the territory and prepare themselves for the time when generative AI has advanced to a point where it can deliver real productivity gains, said Kevin Walkush, a portfolio manager at Jensen Investment Management.

The current generation of agents were unlikely to do much for software company revenues, he added, but: “It’s all about establishing their beachheads and long-term positioning.”

Even if the incumbents are best placed to win, the shift towards agent-based systems could still cause upheaval in the way they do business. Most have charged customers a licence fee based on the number of workers who use their software — a model that would be threatened if AI agents make a serious dent in staff counts.

In response, most software companies have started to test usage-based pricing that ties their revenue to query volumes. Salesforce, for instance, says it will charge $2 for each “conversation” with its AI agents. Many also talk about a shift to outcome-based pricing that will allow them to share in some of the gains that customers get from using the software, though it is unclear how this might work.

“It’s early, we don’t know how the pricing models will play out,” said Byron Deeter, a partner in Bessemer Venture Partners and investor in early-stage software companies.

Like the move to the cloud, when a change in the way software companies book revenues caused a period of turmoil for the industry, the shift to a new pricing model for AI “might be bumpy for public [software] companies”, he added.

Rethink vital to keep competing with US and China, Vincent Clerc says

Europe’s pioneers in green technology face a first-mover “disadvantage” that needs to be eliminated for the continent to compete with China and the US, a leading European industrialist has said.

Vincent Clerc, chief executive of Danish container shipping giant AP Møller-Maersk, told the Financial Times that both Beijing and Washington offered subsidies to ensure companies had no incentive to wait on the “highly complex” move of polluting industries cutting emissions.

In Europe, however, the incentive was to “try and wait”, Clerc said in an interview with the Financial Times.

“Some of the first movers have had first-mover disadvantage,” Clerc said of Europe. “That is very concerning for me. The regulatory framework is so important because it can really shorten this period . . . We’ve seen this in the US, in China.”

Europe should offer similar incentives to those in China and the US, he added.

Clerc’s comments carry weight as Maersk operates the world’s second-largest container shipping line by capacity and is widely regarded as a bellwether of global trade.

They come in the same month as a report by ex-European Central Bank president Mario Draghi urged the continent to become more competitive or risk “slow agony”.

Among European green pioneers, wind farm developer Ørsted and battery maker Northvolt have struggled in recent months. Ørsted in August scrapped plans for a flagship green-fuels plant while Northvolt has fallen further behind Asian rivals on producing cells at scale.

Clerc acknowledged that a company as global as Maersk could afford to be agnostic about Europe’s approach as long as there was global economic growth.

But he said that the Danish group — which transports one in five containers on the sea — wanted to see Europe succeed. It was presently “slowly losing out”, however.

He said: “We would like to have Europe as a place where we continue to source talent, innovation, where we continue to sharpen our competitive edge, rather than to have to go and do it abroad and see Europe become a museum.”

US President Joe Biden’s Inflation Reduction Act offered $370bn of subsidies for green technologies while experts say China has offered its industry even more. European companies complain that the EU has mostly introduced regulations and red tape rather than incentives.

Clerc called for the EU to complete its single market, including in the financial sector. That would allow European companies to benefit from the “scale” of a large home market just as Chinese and American groups did.

He added that the EU had so far created “a lot of regulations” on the green transition but “not necessarily created the incentives” to build “champions”.

Container shipping groups have put forward their own plan ahead of a crunch meeting of the International Maritime Organization this month to decarbonise their sector, which is responsible for about 3 per cent of global emissions.

They are pushing what they call a “green balance mechanism”, which would try to make the costs of expensive renewable fuels competitive with those for conventional, hydrocarbon “bunker” fuel for ships.

“If accepted, it can put Europe in the game,” Clerc said of the proposed mechanism. “It would be quite a disappointment if we couldn’t get a framework that gets the job done when we have a willing sector.”

Maersk has led the container shipping industry in ordering new vessels capable of using green fuels that can also run on existing bunker. Its first such craft were designed to run on green methanol. But more recently ordered vessels will be powered by liquefied natural gas or bio-LNG, to the dismay of some environmental groups.

“It is a very complex process which requires mobilisation of a lot of capital, a lot of stakeholders, a lot of investments,” Clerc said of the transition to low-carbon shipping. “No single player is big enough to say that I can solve this alone. There needs to be an alignment of incentives.”

The Maersk boss also warned that shipping lines were likely to have to continue diverting most sailings between Asia and Europe round the Cape of Good Hope into next year.

Most container lines have been using the longer routes since attacks on ships by Yemen’s Houthi rebels in late 2023 prompted them to abandon the normal route via the Red Sea and Suez Canal.

The diversions have driven up the rates earned by shipping lines. But the longer routes add up to two weeks to journey times for customers awaiting goods and have generated substantial congestion at many ports.

“The reality is that if nothing happens, we will have to go for the longer routes,” Clerc said of plans for next year. “This is at a standstill. It just illustrates that it is a world that is more and more volatile, and it is a world that is more subject to disruption.”

The next serious cause of congestion for the sector might be “to do with labour”, he added. The main dockers’ union on the US east and Gulf coasts has said it will go out on strike from October 1 if it fails to reach a deal with employers on a new labour contract.

Clerc also addressed issues about the “low level of quality” being offered to shippers by container lines. Service punctuality across the industry has been poor in recent years.

Maersk in January announced that from the end of January 2025 it would end its alliance with Switzerland’s Mediterranean Shipping Company, the world’s biggest container line. The move was widely attributed to Maersk’s unhappiness with MSC’s poor punctuality.

Clerc said that he was “obviously very concerned” about poor quality.

However, he expressed hope that an alliance with Germany’s Hapag-Lloyd, starting from February, would address the concerns.

Some analysts have said that MSC is trying to “kill Maersk” with its aggressive expansion strategy, which in 2022 took it past Maersk as the world’s largest container line by fleet size.

However, Clerc insisted he did not feel “threatened” by MSC.

“MSC is executing their strategy, and we’re executing ours,” Clerc said. “If they’re trying to kill us, it’s not something we notice. It is a very fast changing and dynamic world, and I think there are different paths to success.”

ONLINE

EU’s defence commissioner wants obligatory ammunition stockpiles

Andrius Kubilius, named as the bloc’s first military head, says western Europe must prepare for Russian attacks

The EU’s first defence commissioner wants to force countries to stockpile minimum levels of ammunition and other supplies, saying it is the best way to scale up the bloc’s undersized arms industry to ready it for war.

Andrius Kubilius, who will take the job this year if the European parliament approves, said the EU must prepare for Russian attack within a few years.

He compared his plan to similar arrangements for natural gas, under which countries must keep reserves and share them with neighbours in need.

“Why do we not have some kind of criteria called military security to keep in storage such and such an amount of artillery shells and some other products . . . let’s say powder [explosives]?

“You bring added value to the security of member states but in addition, you are creating permanent demand for production, which is the biggest issue for the defence industry. They lack stable long-term orders for production.”

The EU has tried to boost weapons output after Ukraine was forced to ration shells and missiles in its effort to push back Russian offensives. 

Finland, Russia’s neighbour, is one of the few member states with large reserves of weaponry while media reports in Germany in 2022 said its army would run out of ammunition after two days of fighting.

Kubilius said he had no wish to duplicate the role of Nato. Officials at the US-dominated alliance have criticised the EU’s alternative set of equipment standards and procurement efforts.

In March, the EU allocated €500mn under the Act in Support of Ammunition Production (ASAP) to boost output capacity to 2mn shells annually by the end of 2025.

Kubilius, a former Lithuanian prime minister, said that was an improvement on the 300,000 annual limit when Russia attacked Kyiv in 2022. But more is needed, he said. “If I’m correct, we’re still behind the Russians.”

Commission President Ursula von der Leyen has said the bloc needs to spend €500bn to make up the shortfall in defence spending since the end of the cold war in the 1990s. 

She has given Kubilius 100 days after taking office to produce a white paper on defence strategy. It should include a European air shield, which would cost hundreds of billions of euros, and a cyber defence system, she said.

Kubilius wants EU member states to borrow the money for this jointly, an idea opposed for now by net budget contributors Germany and the Netherlands.

He will also sketch out other projects of common interest that would be eligible for EU funding, including ways of incentivising defence industry companies to work together across borders.

The tendency of various European governments to favour their own national champions has led to a proliferation of different models of tanks, artillery pieces and fighting vehicles, denting efficiency.  

To attract private money, meanwhile, the EU must change investment rules to classify defence spending as sustainable, Kubilius said.

He also said he wanted to work more closely with Ukraine arms manufacturers, as drones and missiles had transformed the modern battlefield. “They have real-world experience,” he said.

Kubilius warned there was no time to lose, citing Germany’s assessment that Russia could be ready to attack an EU member by 2029. 

The EU has been scouring the globe to get weapons to send to Ukraine. The Czech Republic is leading an effort to buy 300,000 artillery shells.

Kubilius said EU industry plans could include the UK, which has left the bloc.

“We consider Britain as part of Europe,” he said. “Democratic Europeans should be as united as possible. I see the danger of our weakness . . . and Putin could be tempted to look for some additional adventures. 

“But the Chinese are [also] watching. The Chinese will make one simple conclusion. The West is quite weak. Despite the fact the combined Western economic spending power is five times stronger than Russian, we are not able to win. What is the reason? It’s a question of political will.”

Sector at standstill as levy on profits and plans to close tax loopholes creates uncertainty

Banks have slashed the amount of loans to UK oil and gas producers since the introduction of the windfall tax on fossil fuel companies in 2022, according to lenders.

The plummet in borrowing is fuelling worries that Britain’s oil and gas industry could become “impractical” to invest in, threatening its closure before renewable power sources are available to fill the gap.

The industry has been at a standstill this year, with not one well drilled in the UK’s section of the North Sea.

One investment bank said loans available have tumbled by up to half since the introduction of the Energy Profits Levy — an additional tax imposed on the oil and gas groups by the previous Conservative government after the surge in commodity prices in the wake of the full-scale Russian invasion of Ukraine.

“The North Sea oil and gas industry, particularly in Scotland, is being starved of financing,” said Davis Larssen, chief executive of Proserv, an Aberdeen-based provider of subsea control systems.

“This financial strain extends beyond traditional banks because even insurance companies are beginning to withdraw support, which threatens the viability of many businesses,” he added.

Debt available to UK companies under so-called reserve-based lending, a form of asset-backed borrowing secured against future cash flows, has fallen 40-50 per cent since the introduction of the windfall tax, said Norwegian investment bank SpareBank 1 Markets.

Fossil fuel companies often raise finance through reserve-based lending where loans are repaid with the proceeds of the oil produced by the borrowers.

Companies will face a total tax burden of 78 per cent in November after Labour announced plans to increase the EPL, a temporary measure that has been extended until 2030, to 38 per cent.

They also risk losing capital expenditure and investment allowances after ministers said they want to close “unjustifiably generous” tax loopholes.

Independent oil and gas producer Ping Petroleum warned investing in the UK could become “impractical” as a result of rising tax and loss of allowances, while energy consultants Wood Mackenzie said this month it could cause a halving of oil and gas production by 2030.

“We have recently found it very difficult because people who provide capital are very uncertain about whether they are going to get their money back because of changes in policy,” said Robert Fisher, chair of Ping.

As well as tax uncertainty, pressure from environmental campaigners and government to hit emission targets for net zero in the move to renewable power has led to major banks stepping back from financing.

There are now only five banks still lending to UK North Sea oil and gas companies, according to an industry executive.

Alternative sources of finance from bond investors, the oil majors and energy traders have also “gone cold” on funding UK projects, another person said.

In addition, worries about the industry have taken a toll on the shares of the UK groups, which have underperformed their Norwegian peers operating in the North Sea.

Share prices, including reinvested dividends, in the UK’s Ithaca Energy, Serica Energy and EnQuest have all dropped sharply since the end of 2022. Only Harbour Energy, which has cut its UK exposure, has broken the trend with a stable stock price.

In contrast, shares of Norway’s Vår Energi and DNO ASA have performed much better over the same period, although stocks of Equinor, the country and Europe’s biggest natural gas supplier, have fallen.

Some investors say Norwegian producers have benefited from stable policy, which has barely changed in decades, despite similarly high tax levels at 78 per cent.

The Norwegian government has also built in incentives allowing oil and gas groups to deduct capital costs and claim partial refunds when they fall into a loss. This, investors say, explains their share outperformance.

Oslo-based SpareBank 1 Markets adds that UK producers are typically charged up to 1 percentage point more for secured loans than Norwegian groups because of tax uncertainty, while equity research analysts gave UK projects a similar risk profile to those in Kurdistan and West Africa.

“That was definitely not the case if you go back 10 years. That is a quite recent change,” said Jarand Lønne, head of natural resources at the bank. “It is more about stability and being able to plan in the long term rather than the absolute level [of taxation].”

Analysts say the UK’s tax situation has also made it difficult to value companies, making acquisitions harder.

Another sign of the problems in the North Sea is the decision by Neo Energy, Serica and Jersey Oil & Gas to delay exploration in the Buchan Horst field.

“We would love to invest in the UK [and] we’ve got options and things to do, but we can only do that if the tax regime allows us to,” said Martin Copeland, chief financial officer at Serica. “Those [things] we can only do if we get the right outcome on capital allowances.”

Other UK groups were “actively seeking” opportunities in South America, West Africa and Asia, said Nick Dalgarno of investment bank Piper Sandler. One of his clients said they favoured projects in more stable regimes, such as Egypt.

“It’s quite interesting [because] historically if you said that in the UK, people would always claim that we’re a stable environment,” he said.

However, the UK Treasury insisted the government “recognises the need to provide long-term certainty over taxation” and “will work with the oil and gas industry” to develop a successor regime to the EPL levy when it expires to deal with energy shocks.