The global semiconductor industry is witnessing a remarkable resurgence in 2024, fueled significantly by the burgeoning demand for AI technologiesWith the pursuit of advancements in semiconductor manufacturing taking center stage, the industry is poised for an extraordinary evolution—one characterized by rapid growth and transformative innovations.
Wafers, the building blocks of semiconductor chips, form the backbone of this sectorThe utilization rates of these manufacturing processes and the capital expenditures of leading companies provide insights into the cyclical recovery of the marketHistorically, the semiconductor market operates on a four to five-year cycle, with peaks of prosperity consistently associated with the emergence of groundbreaking products that stimulate demandPrevious cycles saw explosive growth driven by consumer electronics, such as PCs and smartphonesHowever, the current cycle is different; the focus has sharpened on how AI technology is steering the industry toward new heights.
As we delve into 2024, it becomes evident that AI's increasing integration across various sectors is the primary driver of this latest semiconductor cycleCompanies like TSMC, a leading player in semiconductor manufacturing, have already reported significant growth in their advanced process technologies due to AI demandObservers anticipate that this trend will continue to spiral upward through 2025. For instance, SMIC, a major Chinese semiconductor manufacturer, is set to unveil its Q4 2024 financial outcomes soon, citing significant possibilities to benefit from the ongoing AI boom.
The rapid advancement of AI technology—including applications in artificial intelligence glasses, headphones, and toys—has sparked an upsurge in demand for wafer foundry servicesThe growth trajectory projected for the industry, as reported by Counterpoint Research, illustrates a remarkable 22% increase in the global wafer foundry sector in 2024, driven predominantly by advanced processes that facilitate AI integration in data centers and edge computing applications.
Further examining TSMC's financial performance sheds light on the reality of this AI-fueled demand
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In Q4 2024, TSMC is expected to report a remarkable 37% rise in revenues, largely attributed to the escalation in the needs for 3nm and 5nm process nodesNotably, their revenue from high-performance computing (HPC) sources has seen a substantial increase of 58% year-over-year, making up a staggering 53% of total revenues—a clear indication of the tangible demand for AI technology.
The appetite for advanced processes is evident not only from TSMC's financial outcomes but also from the significant capital expenditures anticipated from tech giants like Google, Amazon, Meta, and Microsoft, all projecting hundreds of billions in investment by 2025. The allure of 3nm, 4nm, and 5nm technology nodes lies in their ability to deliver lower power consumption alongside high performance, precisely mirroring the requirements of computationally intensive AI chips.
DeepSeek, a notable newcomer to the AI landscape, has garnered attention for its low-cost, high-performance offerings that could drive consumer product adoption in the AI sectorWhile these consumer electronics often rely on more mature semiconductor processes, the gradual rise in penetration for AI applications in items such as smart glasses and AI-enabled toys signals a demand shift towards more complex chip manufacturing services.
Yet, amidst this buoyant atmosphere, challenges lingerThe utilization rates for mature processes (28/22nm and above) are recovering at a slower pace relative to more advanced nodesReports suggest that the recovery for 8-inch wafer production—primarily used in automotive and industrial applications—lag significantly behind 12-inch wafer production.
Experts in the semiconductor field have pointed out that many chip categories, particularly within industrial control and automotive sectors, continue to navigate through inventory digestion phasesThe burgeoning electric vehicle market is grappling with excess inventory that still needs to be resolved before a sustainable recovery can occur
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As one industry representative shared, the successful clearance of this inventory by 2025 is crucial for improving capacity utilization across the board in related wafer foundries.
On another front, SMIC has made significant strides in recent quarters, reflecting this renewed momentumScheduled to announce its Q4 2024 performance soon, SMIC has previously seen quarterly revenues exceeding $2 billion for the first time, representing a historical milestoneTheir Q3 profit margins showed a robust 20.5% increase, and they project a modest range of up to 2% growth in revenues for Q4.
Looking ahead, projections set for 2025 illustrate a promising trajectory for global semiconductor demand, particularly within AI sectors, which are expected to see robust growth rates of over 10% in dollar termsOther segments may see modest gains but are not projected to outperform the AI marketNotably, areas like industrial and automotive sectors are yet to show signs of recovery; however, should these industries experience an upswing in the latter half of 2024, they could lend considerable momentum to overall growth in the semiconductor landscape.
Market insights provided by Tianfeng Securities have also highlighted the uncertainties surrounding semiconductor supply chains amidst geopolitical tensionsThe trends reveal an increasing tendency for IC design companies to pivot back towards local manufacturing, a shift that could benefit domestic manufacturers like SMIC, enhancing their operational performance beyond current market expectationsThe anticipated surge in AI demand is likely to push SMIC's Q4 results past market forecasts while offsetting some seasonal downturn effects experienced in the early months of 2025.
In the secondary market, SMIC's H-share has recently reached unprecedented heights, demonstrating investor confidence in the potential gains from the AI waveOn February 7, it closed at HKD 46.65, peaking at HKD 49.15 during trading, marking a historic ascent for the company since its public listing
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