The Demise of Microchips? What About All Those Colosseum Sized Data Centers?
According to various recent media articles, and as headlined in a recent WSJ Opinion article, “The Microchip Era Is About to End” - the future is in wafers. Data centers will be the size of a box, not vast energy-hogging structures.
Citation: George Gilder, The Microchip Era is About to End, WSJ Opinion, Nov 3, 2025, https://www.wsj.com/opinion/the-microchip-era-is-about-to-end-e71eb66a?st=JRuZSJ&reflink=desktopwebshare_permalink
The transition would not happen overnight, as microchips remain practical and cost-effective for a wide range of applications. However, a full transition to wafer-scale computing would necessitate a complete rethinking of data center design, with a strong focus on high power density, advanced thermal management, and potentially new physical layouts to maximize efficiency. This represents a potential paradigm shift where smaller, more specialized, and highly efficient facilities might replace today's sprawling data centers.
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If wafer-scale computing were to fully replace traditional microchips as the centerpiece of AI hardware, existing data centers would undergo a significant transformation in how they are used and potentially in their physical design.
I. Transformation of Existing Data Centers
Repurposing/Secondary Market: Retired servers and microchips would likely be sold to secondary markets or used by smaller, tier-2 or tier-3 operators. Components with residual value, especially the high-performance GPUs, could be resold online.
Space Consolidation: The immense integration density of wafer-scale systems could dramatically shrink the physical footprint for a given amount of compute power. The current sprawling data centers could potentially be consolidated, as a "data center in a box" might achieve the same performance as a large cluster of microchip systems.
Cooling and Power Overhaul: Wafer-scale chips, while more energy-efficient per operation, can generate intense localized heat, requiring advanced, direct liquid cooling systems integrated directly into the chip package. Existing data centers designed primarily for air cooling would need substantial retrofitting to handle these new thermal demands.
Simplification of Data Center Network Infrastructure: Wafer-scale systems feature high-bandwidth, on-wafer or near-wafer interconnects, which eliminate many of the communication bottlenecks and complex wiring (like extensive optical or copper links) found in multi-chip data centers..
II. Implications for Older Hardware
Obsolescence and Recycling: As newer, more efficient wafer-scale technology becomes standard, older, less efficient microchip systems would become obsolete more quickly. Companies would need robust processes for recycling or securely destroying outdated hardware and drives.
Specialized Use Cases: Older microchip systems might still be used for less demanding tasks, general-purpose computing, or for specific research and development purposes where maintaining older code or testing different AI generations is necessary.
In essence, while the physical buildings might remain, their internal layout, power delivery, and cooling systems would need to be rearchitected to accommodate the dense, specialized infrastructure of the wafer-scale era.
III. Impact on Commercial Contracts and Licenses
A potential industry shift from traditional microchips to wafer-scale computing would not automatically invalidate commercial contracts or transform existing licenses. Instead, the legal impact would arise from how current agreements handle technological obsolescence, scope limitations, performance obligations, and risk allocation. Most challenges would stem from interpreting contract terms that were drafted before this technological inflection point.
1. Commercial Contracts
Obsolescence Clauses
Many long-term hardware supply and service agreements include provisions addressing the retirement of outdated technology. A transition to wafer-scale architectures could trigger these clauses, requiring renegotiation, phased termination, or substitution of products. Parties would need to follow the procedures set out in their contracts to manage the phase-out of microchip-based systems.
Supply Agreements
Microchip supply contracts—particularly those requiring delivery of millions of units—would confront sudden drops in demand as customers accelerate migration to wafer-scale systems.
Minimum Purchase Commitments: If buyers stop ordering, they may fall into breach. In practice, these situations tend to lead to negotiated buyouts or amendment agreements.
Termination for Convenience: Where available, buyers may use termination-for-convenience clauses (often with notice and a termination fee) to exit microchip-centric supply arrangements.
Service Level Agreements (SLAs)
SLAs keyed to the performance characteristics of current chip-based infrastructure would require updating. Wafer-scale systems promise drastically different performance profiles—e.g., lower latency, higher throughput—which may necessitate new uptime guarantees, response times, and operational dependencies.
Warranties and Support Obligations
Warranties and support agreements for existing microchip hardware generally remain enforceable until the contractual end-of-life. However, manufacturers may seek to discontinue support as technologies age out. If contracts are unclear regarding the duration or conditions of end-of-support, disputes may arise over whether discontinuation constitutes breach or is permitted under the agreement.
2. Effects on Licenses
Licensing Metrics and Scope
Many software and technology licenses are tied to hardware metrics—cores, CPUs, sockets, servers, or similar units. Wafer-scale systems, which consolidate the performance of many chips onto a single substrate, render these traditional metrics ambiguous or obsolete.
Contract Interpretation and Renegotiation
Disputes may arise over how to calculate license fees under the new architecture. While existing licenses would not automatically terminate, they would require reinterpretation or amendment to align the licensing model with the new hardware paradigm. In most cases, the parties would resolve these issues through negotiation rather than litigation.
“Future-Proofing” Clauses
Some well-drafted agreements include provisions obligating the parties to work in good faith to adapt the license to new technologies or infrastructure changes. These may provide a contractual bridge during technology transitions, though they vary widely in enforceability and specificity.
3. Legal Liability Considerations
No Automatic New Liability
The emergence of a new technology does not itself create liability for continuing to use the older one. Liability arises from breach of contract, failure to meet regulatory or cybersecurity requirements, or providing services that no longer satisfy contractual or statutory standards.
Risk Allocation
Contracts typically include liability caps, disclaimers, and indemnification frameworks. If a data center operator experiences service failures or security vulnerabilities due to outdated microchip infrastructure, its ability to seek recourse from a chip supplier would be governed—with substantial limitations—by these risk-allocation terms.
Evolving Doctrines in AI and Hardware Liability
Courts and regulators are rapidly developing doctrines for AI-related harms, inference errors, algorithmic failures, and system-level performance breakdowns. As wafer-scale platforms become integrated into AI workloads, parties must carefully negotiate how responsibility for these risks is allocated across the hardware, middleware, and application layers.
4. Practical and Market-Size Considerations
The real-world impact of this transition depends heavily on the size, purchasing power, and market position of the contracting parties.
Large hyperscale cloud providers—Amazon, Microsoft, Google—often negotiate directly with chipmakers such as NVIDIA, Intel, and AMD. Their volumes allow for long-term, highly customized contracts including direct-buy rights, guaranteed capacity, or co-development agreements.
OpenAI, for example, sources NVIDIA hardware through a mix of large-scale purchase agreements, strategic partnerships with cloud providers, and an investment-linked relationship with NVIDIA—rather than through a single exclusive or proprietary supply contract.
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Disclaimer: This blog post is provided for informational purposes only and does not constitute legal advice. The linked article is the work of its respective author(s) and publication, with full attribution provided. BAYPOINT LAW is not affiliated with the author(s) or publication; it is shared solely as a matter of professional interest.