As 2024 concludes and 2025 begins, AI remains the cornerstone of semiconductor sector growth, fueling increased demand for foundry services. However, Donald Trump's return to the presidency on January 20, 2025, introduces potential uncertainties. His administration's policies could drive inflation and economic cooling, aligning with a predicted downturn in the semiconductor market cycle. This adds complexity to the outlook under the Trump 2.0 administration.
According to the World Semiconductor Trade Statistics (WSTS), the global semiconductor market is projected to grow by 19% year-over-year in 2024, followed by an estimated 11.2% increase in 2025. AI remains a key driver of this expansion, with logic and memory chip sectors tied to AI expected to see double-digit growth. By contrast, other semiconductor segments are anticipated to achieve more modest single-digit gains.
AI servers outpace smartphones and notebooks as 2024's growth catalyst
Downstream markets reflect this trend, with AI servers leading the charge through strong double-digit growth. In comparison, smartphones and notebooks are expected to see more restrained single-digit growth.
AI remains the dominant force shaping 2024, with generative AI driving rapid growth across the tech sector and bolstering the semiconductor industry's momentum—a trend likely to persist into 2025. Industry leaders like TSMC and Nvidia stand to gain significantly as top producers of AI computing chips.
Semiconductor cycles: past patterns and AI-driven recovery in 2024
As 2025 nears, the semiconductor industry's cyclical patterns remain evident. The previous upturn, spanning mid-2019 to mid-2021, lasted around 25 months, driven by heightened demand for consumer electronics and PCs during the Covid-19 pandemic, alongside inventory restocking efforts.
The ongoing recovery phase, which started in the second quarter of 2023, is still under 20 months. In 2024, global semiconductor sales are projected to grow year-over-year, propelled by surging demand for AI computing fueled by generative AI and increased needs for memory chips and electronic devices like smartphones and PCs.
Note: Calculated based on the revenue fluctuations of upstream, midstream, and downstream semiconductor companies.
The demand for AI servers continues to rise, with cloud training and inference AI chips experiencing early-stage rapid growth. As AI extends from the cloud to edge computing, it fuels demand for consumer electronics like smartphones and PCs while simultaneously driving cloud infrastructure growth.
TSMC, a leader in advanced manufacturing, outpaces the semiconductor industry's growth. In the third quarter of 2024, TSMC's revenue is forecasted to climb 36% year-over-year, dwarfing the industry's average growth rate of 4%.
TSMC emerges as a top beneficiary in AI chip production. Leading AI chipmakers—Nvidia, AMD, Qualcomm, and MediaTek—are projected to sustain robust growth in their cloud training chips and mobile SoC products through 2025.
Geopolitical tensions and China's semiconductor push reshape global supply chains
Yet, ongoing US-China tensions introduce geopolitical risks that add uncertainty to the semiconductor industry's cyclical patterns.
US sanctions on China's semiconductor industry have intensified, accelerating China's push for self-sufficiency. Domestic substitution demand is on the rise. Over the past two to three years, global foundries have expanded capacity significantly in China, reaching a peak. New capacity releases over the last two years have bolstered supply and are expected to continue through 2025.
Governments globally are competing to host major foundries to mitigate risks from regional trade disputes. Meanwhile, Chinese electronics manufacturers are increasingly adopting locally produced components to sidestep potential trade conflicts.
European firms such as STMicroelectronics, NXP, and Infineon have shown a growing interest in sourcing wafer fabrication from Chinese foundries, benefitting key players like SMIC and Shanghai Huahong Group.
China's industrial chain localization is set to deepen further in 2025. As geopolitical tensions escalate and Chinese electronics manufacturers strengthen their foothold, localized wafer fabrication in China is expected to drive sustained demand growth.