Semiconductors drive global growth – but the system that powers them is under intense pressure. Artificial intelligence (AI) demand is exploding, growing at 40% to 50% compound annual growth rate (CAGR) and consuming chip supply across both advanced and mature nodes. Meanwhile, tariffs and geopolitics are hard-wiring a divided supply chain: Taiwan and the United States dominate sub-22nm while China leads in mature nodes.
The result? Rising regional dependencies, long lead times, and shifting trade alliances have turned chip sourcing into a boardroom-level risk. Add in demand from electric vehicles (EVs), 5G, and legacy consumer technology, and even a modest shock could tip the system into shortages.
In partnership with SEMI, Kearney recently released a report entitled State of Semiconductors 2025 – Braving the storm: Navigating an uncertain future. Here are some of the report’s key highlights:
- Semiconductors are the “fuel of the modern digital economy.” The top five semiconductor companies collectively command a market capitalization of $5.5 trillion, surpassing the combined value of the five largest oil and gas companies. This highlights the industry’s central role in global technological progress and its economic importance.
- AI is fundamentally transforming demand. Demand for chips is surging due to cutting-edge AI applications, with AI server volumes projected to grow at a staggering 40% to 50% CAGR between 2024 and 2027. This far outpaces the growth for general-purpose servers and makes servers the fastest-growing consumer of semiconductors.
- Supply chain challenges persist despite capacity expansion. While annual wafer demand is expected to grow by 4% and fab capacity by 8% between 2024 and 2027, significant challenges remain due to constraints at the node and component levels. AI-fueled demand is particularly squeezing cutting-edge capacity.
- Competition for advanced nodes is intensifying. Over 40% of global supply chain leaders anticipate shortages in <8nm nodes in the near future. Even small fluctuations in end-product demand, such as a 3% to 5% increase in smartphone sales or a 4% to 6% increase in PC sales, could strain global chip supply in the <8nm and 90nm–350nm categories.
- Geopolitics is a crucial determinant of semiconductor supply. Rising international tensions, protectionist policies, and economic nationalism are shaping the industry. The industry’s response, whether through production redistribution or new strategies, will impact its future and virtually every other sector.
- New bottlenecks are emerging beyond wafer supply. Critical areas such as lithography equipment, advanced packaging capacity, and skilled fab talent are becoming as vital as wafer supply. Advanced packaging, particularly technologies such as 3D stacking and hybrid bonding (e.g. TSMC’s CoWoS), is identified as a significant bottleneck for high-performance computing and AI markets.
- Chiplet architectures offer a strategic compromise. These modular components integrate advanced-node logic with mature-node analog and memory, optimizing cost and performance and easing pressure on leading-edge nodes. However, they also shift significant demand to mature-node manufacturing, creating new uncertainties in forecasting.
- Supply chain resilience is paramount. Firms must adopt dynamic scenario planning, diversify supply sources, secure long-term agreements, and anticipate shifts in competitive dynamics. Designing for resilience, hedging against geopolitical risk, and proactively securing long-term supply at critical nodes are crucial for success.
- The semiconductor ecosystem is becoming fragmented. With China dominating mature nodes and Western countries controlling advanced nodes, two parallel supply chains are emerging. Companies need to assess their exposure, invest in dual-path sourcing, and use tariff-indexed contracts and scenario-based planning to navigate this fragmented landscape.
Click here to download the full report.