Can AI-Driven Growth Sustain the Semiconductor Industry's Momentum?

Current AI-driven demand for semiconductors

AI-driven demand for semiconductors is robust, with Intel and TSMC expanding capacity to meet growing needs. AMD sees long-term growth in AI at the edge, while Nvidia notes increased Data Center demand from generative AI. Qualcomm highlights strong on-device AI demand, particularly in smartphones.

"Our investments in leading-edge capacity in the U.S. and Europe will be critical to meet the growing demand for silicon, with the global semiconductor market poised to double over the next five years," said David Zinsner, Intel CFO." --- (INTC, press release, 2024/06/04)

"We are well on track for volume production in first half 2025. Our second fab has been upgraded to utilize 2-nanometer technologies to support a strong AI-related demand in addition to the previously announced 3-nanometer." --- (TSM, earning call, 2024/Q1)

"Longer term, we see AI at the edge as a large growth opportunity that will drive increased demand for compute across a wide range of devices." --- (AMD, earning call, 2024/Q1)

"Recent technologies, such as generative AI models, have emerged, and while they have driven increased demand for Data Center, the long-term trajectory is unknown." --- (NVDA, sec filing, 2025/Q1)

"And maybe just building off the 40% increase in shipments to the Chinese OEMs holding through the June quarter guidance, just based on your expanding on-device AI portfolio, is this level of demand sustainable into the back half of the calendar year or ask another way do you expect the smartphone market to have kind of normal seasonal turns after the June quarter dip?" --- (QCOM, earning call, 2024/Q2)

Technological advancements driving AI demand

Technological advancements in AI are significantly driving demand in the semiconductor industry. AMD highlights the surge in AI-enabled embedded applications requiring efficient single-chip solutions. Nvidia notes the proliferation of generative AI startups across various fields. Intel emphasizes AI-driven advancements extending the longevity of semiconductor nodes, while Google underscores its research leadership and technical advances in AI.

""The demand for AI-enabled embedded applications is exploding and driving the need for single-chip solutions for the most efficient end-to-end acceleration within the power and area constraints of embedded systems," said Salil Raje, senior vice president and general manager, Adaptive and Embedded Computing Group, AMD." --- (AMD, press release, 2024/04/09)

"There's also a long line of generative AI startups, some 15,000, 20,000 startups that in all different fields from multimedia to digital characters, of course, all kinds of design tool application -- productivity applications, digital biology, the moving of the AV industry to video, so that they can train end-to-end models, to expand the operating domain of self-driving cars." --- (NVDA, earning call, 2025/Q1)

"So all of these, we believe, drive a very effective capital assets. We've leveraged smart capital very effectively, very unique turf, and the AI driven error will be putting significant value in driving those nodes for longer and longer in the business model that we've laid." --- (INTC, event transcript, 2024/04/02)

"From our foundation of research leadership and technical advances, including multi modality and long context, to our global product footprint that gives us opportunities to bring helpful AI to people everywhere, to our world class infrastructure that makes it all possible. Through all of these efforts, we are constantly listening to feedback, making improvements, learning and in trading." --- (GOOG, AGM, 2024/06/07)

"Avant AI™ helps businesses by reducing resource waste, lessening performance delays, speeding up resource expansion, and automating resource distribution, which altogether enhances operational efficiency." --- (AMD, press release, 2024/04/16)

Supply chain dynamics and challenges

Supply chain challenges in the semiconductor industry are complex and require collaboration across the supply chain (AMAT). Companies are proactively working with partners to anticipate and address these issues (ASML). Strategies to rebalance the global supply chain are being implemented (INTC), and customers are re-evaluating their supply sources to mitigate disruptions (TXN).

""These are complex challenges that no single company – or country – can solve alone, and Applied Materials is committed to collaborating across the semiconductor supply chain to define and deploy innovative solutions to reduce the industry's environmental impact."" --- (AMAT, press release, 2024/06/20)

"It was very strong last year, maybe partly as a result of the supply chain challenges." --- (LRCX, conference, 2024/05/30)

"We want them to do that by 2026. So we are anticipating. We are working with them ahead as much as possible. So this is for the supply chain." --- (ASML, event transcript, 2024/04/24)

"Literally, we've delivered on all aspects of this deliberate strategy. And in the process, we have set in motion the rebalancing of the global supply chain." --- (INTC, event transcript, 2024/04/02)

"Thank you. Dave Pahl: Sure. Yes. Thanks again, Tom. I would say that many customers and especially those in automotive, as they went through and dealt with the disruptions that they had in supply chains actually we are very thoughtful in looking at where their supply is coming from, what things that they can do differently well beyond just carrying extra days of inventory." --- (TXN, earning call, 2024/Q1)

Competitive landscape in the semiconductor industry

The semiconductor industry is highly competitive, with companies like Qualcomm, AMD, TSMC, Nvidia, and Intel navigating a landscape filled with diverse competitors and technological challenges. Qualcomm faces a broad spectrum of rivals, AMD is confident in increasing its competitiveness, TSMC supports global innovation, Nvidia contends with heightened competition in China, and Intel focuses on cost structure and profitability.

"We compete with many different semiconductor companies, ranging from multinational companies with integrated research and development, manufacturing, sales and marketing organizations across a broad spectrum of product lines, to companies that are focused on a single application, industry or standard product, including those that produce products for mobile handsets, automotive or IoT, among others." --- (QCOM, sec filing, 2024/Q2)

"So we're very confident in our ability to continue to be very competitive. Frankly, I think we're going to get more competitive." --- (AMD, earning call, 2024/Q1)

"The Company supports a thriving ecosystem of global customers and partners with the industry's leading process technologies and portfolio of design enablement solutions to unleash innovation for the global semiconductor industry." --- (TSM, press release, 2024/04/24)

"And it's a lot more competitive in China now because of the limitations on our technology." --- (NVDA, earning call, 2025/Q1)

"We'll see meaningful ASP uplift as well as a more competitive cost structure, which will drive improved profitability." --- (INTC, event transcript, 2024/04/02)

Financial impact of AI-driven growth

AI-driven growth is bolstering the semiconductor industry's financial outlook, with Intel and AMD projecting strong momentum and sustainable profitability. However, Qualcomm highlights potential risks if new technologies fail to succeed, emphasizing the importance of innovation and expansion in maintaining revenue growth.

"is quite strong for the business, first-half a bit weaker, but we think it's very understandable, very explainable and the second-half outlook that will be very comfortable for every business across Intel growing and a lot of momentum as we go into '25." --- (INTC, earning call, 2024/Q1)

"And as they looked at that portfolio of IP and balanced it with these higher margin portions of the business to help and drive AMD into sustainable profitability with a very strong balance sheet, they really leaned AMD are who needed for the archery of all their businesses and the applications that they're running." --- (AMD, conference, 2024/06/12)

"If we are not successful in extending our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets, if our new technologies and products are not successful, or if we are not successful in the time frames we anticipate, we may incur significant costs and asset impairments, our business and revenues may not grow or grow as anticipated, our revenues and margins may be negatively impacted, our stock price may decline and our reputation may be harmed." --- (QCOM, sec filing, 2024/Q2)

"Running low power #AI models on device reduces energy consumption, promoting sustainability by minimizing the environmental impact of AI systems. Keep reading: https://t.co/6NxUpCsWQw" --- (QCOM, twitter, 2024/05/08)

Future outlook for AI-driven growth

Future growth in the semiconductor industry hinges on expanding into new areas like automotive and IoT (QCOM), integrating AI across industries (AMD), and making AI PCs commonplace (INTC). These strategies highlight a strong commitment to leveraging AI for sustained industry momentum.

"In particular, our future growth depends in part on new and expanded product areas, and industries and applications beyond mobile handsets, such as automotive and IoT; our ability to develop leading and cost-effective technologies and products for these new and expanded product areas, industries and applications; and third parties incorporating our technologies and products into devices used in these product areas, industries and applications." --- (QCOM, sec filing, 2024/Q2)

"Doctor. Xu's influence extends beyond AMD. She has been a key advocate for the integration of AI across industries, emphasizing its transformative power. Her commitment to innovation and collaboration is evident in her leadership style, which focuses on the development of cutting edge solutions, while fostering an inclusive and forward looking company culture." --- (AMD, status update, 2024/06/03)

"Great point, @AdamConwayIE. "In other words, it's all about usable AI, rather than #AI for the sake of it." I suggest giving this article a read as @thraxbert expertly conveys @Intel's trajectory for making AI PCs commonplace in the not-so-distant future." --- (INTC, Twitter, 2024/05/01)

Regulatory and geopolitical influences

Geopolitical conflicts and regulatory changes significantly impact the semiconductor industry by disrupting supply chains, increasing raw material costs, and necessitating additional investments in compliance. These factors also influence capital allocation and M&A strategies, highlighting the industry's vulnerability to external geopolitical and regulatory pressures.

"In addition, natural disasters, effects of climate change, acts of war or other geopolitical conflicts may result in disruptions in transportation, distribution channels and supply chains and significant increases in the prices of raw materials." --- (QCOM, sec filing, 2024/Q2)

"There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises, geopolitical conflicts and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues." --- (QCOM, sec filing, 2024/Q2)

"In particular, new, or changes in, environmental and climate change laws, regulations or rules, including relating to greenhouse gas emissions, could lead to new or additional investments in production processes and could increase environmental compliance expenditures." --- (QCOM, sec filing, 2024/Q2)

"In addition, defects, errors or security vulnerabilities in our products could result in failure to achieve market acceptance, a loss of design wins, a shifting of business to our competitors, and litigation or regulatory action against us, and could harm our reputation, our relationships with customers and partners and our ability to attract new customers, as well as the perceptions of our brand." --- (QCOM, sec filing, 2024/Q2)

"It seems like that leaves a lot of room, right? How should we think about capital allocation, particularly in this geopolitical backdrop, how to think about M and A and your intent to sort of do any major transactions?" --- (QCOM, conference, 2024/05/21)

Sustainability and environmental impact

Nvidia and Intel are prioritizing sustainable computing and energy-efficient technologies. Nvidia supports over 750 startups focused on environmental solutions, while Intel aims to become the top sustainable foundry and actively reduces its environmental impact through initiatives like the Intel Sustainability Summit.

"is sustainable computing. Every application that can be accelerated should be going forward." --- (NVDA, AGM, 2024/06/26)

"Proud of our progress, but there's more to do as we aim to become the top sustainable foundry." --- (INTC, Twitter post, 2024/05/07)

"Sustainable Futures, an initiative within the #NVIDIAInception program for startups, supports 750+ companies focused on agriculture, carbon capture, clean energy, climate and weather, environmental analysis, sustainable infrastructure and more. #EarthDay https://t.co/kNXDIdMvlx" --- (NVDA, Twitter post, 2024/04/22)

"If you missed the inaugural Intel Sustainability Summit, @KeyvanEsfarjani did a fantastic job sharing @Intel’s efforts to reduce our environmental impact and summarizing the event – which 140 organizations joined!" --- (INTC, Twitter post, 2024/04/04)

"NVIDIA is at the forefront of energy efficient accelerated computing. General purpose computing performance scaling has slowed. Customers are turning to NVIDIA pioneered accelerated computing as the path to sustainable and cost effective innovation." --- (NVDA, AGM, 2024/06/26)