1. Consumers Are Fed Up With Delivery Fees…Release The Drones!
Recent reports suggest that consumers are ditching fast casual food delivery in favor of pickup[1] in response to a ~50% premium for delivery services.[2] After peaking at 126% in April 2020, the growth in third-party food deliveries has decelerated dramatically to ~6% on a year-over-year basis.[3] In response, Domino’s has partnered with Uber Eats in an effort to expand to more customers.[4]
While resistance to delivery fees should curb further price increases, ARK’s research suggests that drones could deliver packages for far less than their human counterparts.[5] Should the FAA relax regulations on “beyond visual line of sight,”[6] drone services might attract consumers to food delivery once again.
2. Federal Regulation Seems To Have Impacted The Cost Trajectory Of Nuclear Plants In The U.S.
Building on our previous analysis[7] of the role that nuclear energy could play in achieving net zero emissions by 2050, ARK is studying the “overnight construction cost“ (OCC)[8] trend of U.S. Nuclear Plants [9] Interestingly, the OCC of nuclear plants in the U.S. inflected higher in 1974, the year that the U.S. Energy Reorganization Act became effective,[10] as shown below. The Act divided the Atomic Energy Commission into the Nuclear Regulatory Commission and the Energy Research and Development Administration, later merging with other administrations to form the Department of Energy, tasked with promoting not only nuclear power but also other energy initiatives. In 1979, the Three Mile Island nuclear accident seemingly empowered the Nuclear Regulatory Commission, adding to the cost trajectory of nuclear technology.
3. AI Has Turbocharged The Demand For Advanced Chip Packaging, Pushing TSMC To Its Limits
The race to train new artificial intelligence (AI) models is creating unprecedented demand for Graphics Processing Units (GPUs) and high-bandwidth memory chips, not to mention significant challenges for the advanced chip packaging processes that protect and connect them. Unlike previous architectures, AI accelerators that train large language models (LLMs)—like NVIDIA’s H100 and AMD’s MI300 platform—require not only high-bandwidth memory and logic chips packed closely together but also dense interconnects between the chips.
CoWoS, Taiwan Semiconductor Manufacturing Company’s (TSMC’s) “chips on wafer on substrate” advanced packaging technology, enables high-bandwidth memory and GPU chips to communicate through a silicon interposer, improving both the density and length of the metal traces that carry signals between the chips. While competitive technologies exist, CoWoS has superior heat dissipation capabilities and is more cost effective, making it the undisputed leader for AI accelerators.[11]
Today, NVIDIA and AMD account for ~80% of TSMC’s CoWoS supply[12] and are placing significant demands on its future capacity. TSMC’s leadership acknowledged the issue during its recent second-quarter earnings call.[13] To address the problem in the short term, management outlined plans to double the company’s CoWoS advanced packaging capacity next year.[14] To ensure enough supply for AI chips in the longer run, TSMC has committed $3 billion to a new advanced packaging facility, though the new fabs are unlikely to be fully operational for several years.
[1] Liebergall, M. 2023. “Seems like nobody wants their food delivered anymore.” Morning Brew. Link.
[2] Pomranz, M. 2022. “These Cities Are the Most (and Least) Expensive for Using Food Delivery Apps.” Food & Wine. Link.
[3] Grothaus, M. 2023. “Here’s how Uber Eats, DoorDash, and Grubhub rank in the food delivery wars.” Fast Company. Link.
[4] Haddon, H. 2023. “Domino’s Pizza Is Soon Coming to Uber Apps for the First Time.” The Wall Street Journal. Link. Perez, S. 2016. “Domino’s now lets you order pizza just by launching an app—no clicking required.” Tech Crunch. Link.
[5] ARK Investment Management. 2023. “Autonomous Logistics—Big Ideas 2023.” Link.
[6] Walker, T. 2023. “Why Beyond Line Of Sight Is A Game Changer For The Drone Industry.” Forbes. Link.
[7] Maguire, D. 2023. “Small Modular Reactors Could Help Revitalize The US Nuclear Energy Industry.” ARK Investment Management. Link.
[8] “Overnight Construction Cost“ is the cost of a construction project if no interest was incurred during construction—in other words, as though the project had been completed overnight.
[9] This ARK research extends findings from Lovering, J. et al. 2016. “Historical construction costs of global nuclear power reactors.” Energy Policy. Link.
[10] GovInfo, 2023. “Energy Reorganization Act of 1974.” GovInfo. Link.
[11] Patel, D. et al. 2023. “AI Capacity Constraints – CoWoS and HBM Supply Chain.” Semi Analysis. Link.
[12] Shilov, A. 2023a. “AMD and Nvidia GPUs Consume Lion’s Share of TSMC’s CoWoS Capacity.” Tom’s Hardware. Link.
[13] Seeking Alpha Transcripts. 2023. “Taiwan Semiconductor Manufacturing Company Limited (TSM) Q2 2023 Earnings Call Transcript.” Link.
[14] Shilov, A. 2023b. “TSMC To Build $2.87 Billion Facility For Advances Chip Packaging.” AnandTech. Link.