Moore's law

What Is Moore's Law?

Moore's law is an observation that the number of transistors on a microchip roughly doubles every two years, leading to a corresponding exponential increase in computing power and efficiency, often accompanied by a decrease in cost. This principle falls under the broader category of technological innovation and investment implications, profoundly impacting various sectors of the global economy. It is not a law of physics but rather an empirical observation and a self-fulfilling prophecy within the semiconductor industry that has guided research and development.²⁸ Moore's law has become a fundamental driver of progress in digital electronics.

History and Origin

Moore's law originated from an observation made by Gordon Moore, co-founder of Intel, in a 1965 paper titled "Cramming More Components onto Integrated Circuits."²⁷ At the time, Moore was the Director of Research & Development at Fairchild Semiconductor.²⁶ In his article, published in Electronics magazine on April 19, 1965, he predicted that the number of components on an integrated circuit offering the minimum cost per component would double approximately every year for the next decade.²⁴, ²⁵ This groundbreaking prediction was based on early trends in the burgeoning integrated circuit technology.²³

A decade later, in 1975, Moore revised his forecast to a doubling approximately every two years, a rate that has largely held true for decades and became the widely accepted interpretation of Moore's law.²² This empirical relationship has since served as a guiding principle for long-term planning and setting targets for research and development in the semiconductor sector. Gordon Moore's original 1965 article can be accessed directly.

Key Takeaways

• Moore's law observes that the number of transistors on an integrated circuit doubles approximately every two years, leading to increased computing power and reduced costs.²¹
• It is an empirical observation and a projection, not a physical law, that has historically guided the semiconductor industry.²⁰
• The principle has driven significant economic growth and innovation across various industries by making computing power more accessible and affordable.¹⁹
• While the original rate has been revised and faces physical and economic challenges, its underlying premise of continuous technological advancement remains influential.¹⁷, ¹⁸

Formula and Calculation

Moore's law is primarily an observation of exponential growth rather than a precise mathematical formula for calculating a specific financial outcome. However, the core concept can be represented by a simple exponential growth model.

If (N_0) is the initial number of transistors at time (t_0), and (T_d) is the doubling period (approximately 2 years), the number of transistors (N(t)) at a future time (t) can be expressed as:

$N(t) = N_0 \times 2^{(t - t_0) / T_d}$

Where:

• (N(t)) = Number of transistors at time (t)
• (N_0) = Initial number of transistors at time (t_0)
• (t) = Current or future time
• (t_0) = Initial time
• (T_d) = Doubling period (e.g., 2 years)

This relationship describes the increase in transistor density, which correlates with improvements in computing performance and a reduction in the cost per unit of computational power. It influences projections for capital expenditure in chip manufacturing.

Interpreting Moore's Law

Interpreting Moore's law involves understanding its profound implications for technological progress and its economic ripple effects. The doubling of transistors every two years translates to a significant increase in computational capability, often accompanied by a reduction in the physical size and cost of electronic devices.¹⁶ This continuous improvement means that devices become faster, more powerful, and more energy-efficient over time.

For industries, this implies an accelerating pace of technological obsolescence and a constant need for innovation. For consumers, it means access to increasingly sophisticated and affordable technology, driving trends like digital transformation. The consistent progression observed by Moore's law has set an expectation for rapid advancements in sectors reliant on computing power, from consumer electronics to complex scientific computing.

Hypothetical Example

Consider a hypothetical scenario for an investor evaluating a company in the tablet computing market. In 2020, a new tablet is released with a processor containing 10 billion transistors. Based on Moore's law (assuming a two-year doubling period), an investor might anticipate that by 2022, a new generation of tablets would feature processors with approximately 20 billion transistors, offering significantly enhanced performance for similar or even lower manufacturing costs. By 2024, this could further increase to around 40 billion transistors.

This consistent, predictable increase in processing power allows companies to plan their product roadmaps, knowing that more capable and cost-effective components will become available. For the investor, this trend underscores the importance of a company's ability to innovate and integrate the latest chip technologies to maintain its competitive edge and influence its market capitalization. This also means that delaying purchasing decisions for technology products often results in acquiring more powerful devices at a lower price point in the future.

Practical Applications

Moore's law has practical applications across diverse sectors, shaping investment decisions, industrial planning, and the evolution of technology itself. In investing, understanding Moore's law is crucial for assessing the long-term viability and growth potential of companies within the technology sector. Companies that effectively leverage the continuous advancements in microchip technology, such as those involved in artificial intelligence, cloud computing, and advanced analytics, often demonstrate robust productivity gains.

The law has historically served as a roadmap for the semiconductor manufacturing industry, guiding investment strategy in fabrication plants and driving the relentless pursuit of smaller, more efficient transistors.¹⁵ This has led to the miniaturization of electronic devices, making possible the ubiquitous presence of smartphones, wearable technology, and increasingly complex internet-of-things (IoT) devices.¹⁴

Furthermore, the economic impact of Moore's law extends to virtually all sectors. It has facilitated significant job creation and economic growth by enabling new industries and transforming existing ones, such as healthcare, transportation, and communication.¹³ A report commissioned by Intel and developed by IHS estimated that Moore's law contributed a minimum of $3 trillion in incremental GDP over a 20-year period.¹² The continuous reduction in the cost of computing power has fostered an environment of constant innovation, impacting everything from financial modeling to global supply chain management.¹¹

Limitations and Criticisms

While Moore's law has proven remarkably resilient, it faces increasing physical and economic limitations. Critics argue that the exponential growth rate is slowing down, or has already slowed, due to fundamental physics. As transistors approach atomic scales, quantum effects become more prominent, making further miniaturization exceedingly difficult and costly.¹⁰ The energy efficiency gains predicted by related principles like Dennard scaling have also tapered off, leading to increased power consumption challenges for high-performance chips.

Economically, the cost of manufacturing advanced microchips has escalated dramatically, a trend sometimes referred to as "Moore's second law" or Rock's Law, which observes that the cost of a semiconductor fabrication plant doubles roughly every four years. This immense capital expenditure means that only a few large companies can afford to produce leading-edge chips, potentially stifling competition and the pace of innovation.⁹

The diminishing returns on investment for each new generation of chips, both in terms of performance improvement and cost reduction, suggest that the economic viability of continuing the historical pace of Moore's law is becoming tenuous.⁸ While chip designers are exploring alternative approaches, such as advanced packaging, new materials, and specialized architectures, the era of predictable, exponential scaling for general-purpose computing appears to be evolving.⁶, ⁷ This shift may necessitate new investment strategies in areas like quantum computing or neuromorphic chips, impacting sectors that have long relied on the rapid advancements fostered by Moore's law.

Moore's Law vs. Metcalfe's Law

Moore's law is often confused with Metcalfe's Law due to their shared association with exponential growth in technology, but they describe entirely different phenomena. Moore's law primarily concerns the physical scaling of integrated circuits and the doubling of transistor density, leading to increased computing power and efficiency. It is an observation about hardware development and manufacturing capability within the semiconductor industry.

In contrast, Metcalfe's Law relates to network effects. It states that the value of a telecommunications network is proportional to the square of the number of connected users of the system ((n^2)). This law focuses on the growth in value or utility of a network as more participants join, impacting areas like social media, telecommunications, and the internet. While Moore's law enables the creation of more powerful devices that can connect to networks, Metcalfe's Law describes the exponential increase in the value of those networks as they expand. One is about the power of components, and the other is about the power of connections.

FAQs

What is the primary observation of Moore's law?

Moore's law observes that the number of transistors on a microchip approximately doubles every two years, leading to a corresponding increase in computing power and a decrease in cost per unit of performance.⁵

Is Moore's law a scientific law?

No, Moore's law is not a scientific law in the sense of a fundamental law of physics. Instead, it is an empirical observation and a self-fulfilling prophecy that has historically driven the semiconductor industry and shaped technological innovation.⁴

How has Moore's law impacted the economy?

Moore's law has profoundly impacted the global economy by significantly reducing the cost of computing, enabling the miniaturization of electronic devices, and fostering the creation of new industries and services. It has driven immense economic growth and increased productivity across various sectors.², ³

What are the challenges to the continuation of Moore's law?

The primary challenges to Moore's law include physical limits as transistors approach atomic sizes, leading to quantum effects, and economic constraints due to the escalating costs of research and development and manufacturing advanced chips.¹

How does Moore's law relate to deflation?

Moore's law indirectly relates to deflation in technology prices. As computing power doubles and costs decrease, the price of digital products and services tends to fall over time, leading to what some economists refer to as "technological deflation" or "good deflation." This continuous reduction in the cost of information processing has broader implications for inflation measures in the economy.