In recent times, the technological landscape has been notably altered by the rise of Artificial Intelligence (AI), which is driving an unprecedented increase in global semiconductor salesThis sector, once cyclical and reliant on traditional tech cycles, is experiencing a noticeable extension in its growth phase, fueled significantly by AI technologies.

According to the World Semiconductor Trade Statistics (WSTS), global semiconductor sales are projected to reach a staggering $627.6 billion in 2024, marking a year-on-year increase of 19.1%. The projection for 2025 indicates a slight deceleration, with expected growth at 11.2%. This indicates a robust momentum still permeating through the semiconductor market, primarily driven by the demand for AI-related technologies.

Lee Xuan, a senior analyst at Haitong Securities, elaborated on this trend, stating that while each semiconductor cycle displays some similarities, it is also characterized by distinct elements influenced by market demands at different stagesThe current cycle is unique due to AI-oriented terminal products—such as AI-driven consumer devices—that are anticipated to have a prolonged impact on market demandThis perspective is underscored by the International Data Corporation's (IDC) recent report that highlights the continuous growth of AI and High-Performance Computing (HPC) demands, forecasting over 15% growth in the semiconductor sector by 2025.

Traditionally dominated by processors for computing tasks, the semiconductor industry is witnessing a shift towards applications that enhance the functionality of various AI-enhanced products ranging from smartphones to wearable technologiesAs these devices undergo significant upgrades, it creates a ripple effect, consequently increasing demand for semiconductors.

However, while the growth seems optimistic, the market is experiencing signs of gradual slowingWSTS data indicates that the sales for Q4 of 2024 are projected at $170.9 billion, showing a year-on-year increase of 17.1% and a quarter-on-quarter growth of 3%. Yet, it also reported a dip in global sales in December, suggesting underlying pressures on the market due to a decline in demand in certain segments.

Notably, some companies have begun to report challenges related to market saturation and changing consumer demands

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NXP Semiconductors warned of a projected 10% decline in revenue for the first quarter, while industry giant Samsung Electronics reported a nearly 30% drop in operational profits for Q4 of 2024 compared to the previous quarterThis decline was attributed to softening market conditions and rising expendituresOther significant players like Texas Instruments and STMicroelectronics similarly did not meet the high expectations set by analysts, raising concerns about the future trajectories of semiconductor demand.

Betty Wang, chief economist at the Oxford Economics Institute, noted discrepancies in their Asia Chip Export Index (CEI), indicating potential early warning signs of cyclical slowdownsThe data highlighted that a mismatch between the monetary value and volume involved often precedes a downturn—a trend witnessed over recent monthsWang contends that despite these challenges, sales in 2025 are still expected to experience double-digit growth, anchored by the ongoing global push for AI integration in various consumer and business applications.

Over the past decade, the global tech cycle dominated by consumer electronics—such as smartphones and laptops—has lasted roughly 1.5 to 2 yearsAfter a brief lull during the pandemic, there has been a resurgence in electronic demand, but forecasts now indicate that this sector might see cooling in the next few quartersNonetheless, competing for wider AI adoption may prolong traditional cycles economically, hence benefiting regions like Asia in terms of exports.

According to a nationwide survey conducted in the United States, the pace at which AI technology is being adopted surpasses historical indicators of personal computer and internet uptakeA separate study by McKinsey highlighted the demand scenarios for AI-related chips, projecting explosive growth driven by an increased computation burden on data centers and smartphones, with estimates showing that by 2030, the requirements for AI computation could witness a paradigm shift.

Lee Xuan echoed this sentiment, asserting that AI is destined to become a principal driver of growth within the semiconductor sector, reshaping traditional consumer electronics and prompting an upgrade cycle

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This evolution in demand hints at a potential upswing in traditional markets that cater to consumer electronics.

Gartner, a leading information technology research and analysis firm, predicts that global semiconductor revenue will likely experience a surge of approximately 14% by 2025. The insights suggest that within this timeframe, memory markets and graphics processing units (GPUs) will be crucial for driving income growth, particularly as demand for AI-driven semiconductors surges alongside a recovery in electronic productionInterestingly, the automotive and industrial sectors continue to show sluggish demand, hinting at a bifurcation in growth potential across different market segments.

While concerns persist regarding semiconductor profitability in the face of market sluggishness, companies like Samsung are leaning into innovation, vowing to push forward with AI-integrated smartphones and other premium devices to offset potential declinesExperts, including Dexter Thillien from the Economist Intelligence Unit, reaffirm the importance of AI as a driving force amid the low performance in the consumer electronics market.

As the semiconductor industry continues to adapt to a transforming environment marked by the rise of AI, the coming years will be pivotalThe interplay between traditional market forces and burgeoning AI demands will invariably shape the trajectory of the global semiconductor economy, fostering growth while simultaneously posing challenges that will test the resilience of industry players around the world.

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