Over the recent years, semiconductors have been crucial drivers of the global economy, playing a pivotal role as the building blocks of modern electronics, from smartphones, computers and automobiles to industrial machinery and advanced medical equipment. The side effect of this strong economic footprint is the geopolitical scrutiny over the industry, mostly resulting from the high level of fragmentation. The sector's upstream activities are mostly located in the US (design, R&D, equipment), and to some extent in Europe (equipment), while downstream activities are mostly located in Asia, and more specifically in China, Taiwan, South Korea and Japan for manufacturing (over 75% of wafer production capacities). Since the emergence and rapid development of AI technology and large language models (LLMs), the political status of the semiconductor industry has intensified, and national interests get the upper hand over business ones. Hence the multiplication of direct or indirect (via rare earths) bilateral trade curbs announced over the past 12 months between the US and China, which is threatening to deteriorate the sector outlook if tensions intensify further. It is also important to keep a close eye on the geopolitical relationship between China and Taiwan, which is home to the world's biggest foundry (TSMC), which produces over 90% of the most cutting-edge chips intended for AI technology.
We expect semiconductor revenue to post a CAGR of +5% over the next three years, led by Asia-Pacific (+6%), America (+6%) and China (+5.5%) as both regions are engaged in a race for technology leadership to enhance not only their economic performance but also their political influence in a more complex trade environment where national preferences and security protection dominate industrial policy. The slightly less rosy outlook in EMEA (+4%) is in part due to the moderate growth outlook for the region but also because of lower corporate density and an under-sized private investment market able to underpin the development of the industry, exposing the region to negative externalities in case of supply-chain disruptions.
In term of industries, massive investment for building up data center hubs, private or public, will significantly drive the demand for semiconductors, and hence the revenue outlook. However, the prospect of multi-billion dollar capital investments into that segment could be halted, or partially downsized, by technical issues as the national grid network could quickly come under pressure, given that AI is a very power-intensive technology. The expansion of cloud services alongside the ongoing digitalization of the global economy and the spread of connectivity features across multiple sectors will also be a strong driver of revenue for the electronics industry (+12% CAGR for 2026-2028 at the global level). Other sources of growth include the manufacturing industry, where the deeper automatization and integration of robotic tools to improve productivity and solve labor shortages will require a large quantity of chips. The integration of robotic technology across the manufacturing supply chain is expected to be more marked in China, Europe and the US. We expect a quite similar +5% CAGR over the next three years in both the computing and consumer segments amid increasing integration of cutting-edge chips into AI-powered machines in the near future. However, growth should be gradual as we still see some hurdles in convincing corporates and households to pay a premium for a technology that is still under development and still needs to prove its core benefits to justify a premium fee.
Beyond geopolitical and energy capacity aspects, we see another potential downside risk for the industry in the short and mid run in case of investor fatigue following a slow delivery of AI-related profits. The high expectations regarding AI's growth potential imply a disappointment risk if the ROI turns out smaller than expected, or the benefits take longer to materialize. This could force companies to cut capex programs and could lead to capital outflows from retail/institutional investors.
