The world of technology is in a constant state of transformation, driven by the rise of artificial intelligence (AI) and its implications for the semiconductor industryAs AI technologies continue to advance, they are significantly impacting the dynamics of global semiconductor sales, which are expected to reach an impressive $627.6 billion in 2024, marking a remarkable growth rate of 19.1% compared to the previous yearIndustry analysts assert that the semiconductor cycle is complex and influenced by various factors at different times, yet the current cycle is particularly differentiated by the anticipated continuous deployment of AI terminal products.

The International Data Corporation recently released a report indicating that the demand for AI and high-performance computing is rising globally, which is essential for the semiconductor market anticipated to grow by over 15% by 2025. Major application markets, including cloud data centers and specialized industry niches, are expected to undergo substantial upgrades, signaling a new era of growth for the semiconductor industry.

Looking forward to 2025, the focus should remain on the recovery of industry cycles, especially the profitability that AI applications may bring to the terminal marketConsumer electronics, including smartphones, laptops, and wearable technology, are expected to see significant upgrades, consequently boosting semiconductor demand in the process.

However, while the semiconductor market appears to be in an upswing, there are signs of a slowdownAccording to the World Semiconductor Trade Statistics (WSTS), sales for the fourth quarter of 2024 are estimated at $170.9 billion, reflecting a year-over-year increase of 17.1% and a sequential uptick of 3.0%. Nonetheless, a dip in global sales was observed recently; December's figures showed a decrease of 1.2%, highlighting a discrepancy in the market's growth trajectory.

Several companies within the semiconductor space have reported weaker-than-expected performance due to continued sluggish demand for industrial and automotive chips

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For instance, Dutch semiconductor giant NXP projected a significant drop of approximately 10% in its first-quarter revenue, expecting it to fall to $2.83 billionSimilarly, Samsung Electronics revealed a nearly 30% decline in operating profit for the fourth quarter of 2024, attributing this drop to weak market conditions and increased company expenditures.

Betty Wang, Chief Economist at the Oxford Economics Research Institute, drew attention to the Asian Chip Export Index they have developed, which indicates a mismatch between the monetary value and the quantity index of Asian CEIHistorical patterns suggest that such discrepancies typically foreshadow a cyclical slowdown, an insight further supported by recent semiconductor sales data demonstrating a peak followed by a decline in year-over-year growth rates.

Despite these signs of slowdown, Wang maintains optimism for 2025, predicting double-digit growth in global semiconductor sales, thereby supporting robust exports for Asian electronicsThe momentum created by fast-evolving AI technologies could play a pivotal role in this upward trend, continuing to fuel the global technology cycle.

Over the past decade, the technology cycle has largely been dominated by consumer electronics such as smartphones, laptops, and gaming consoles, typically lasting one and a half to two yearsThe pent-up demand during the pandemic reached its lowest point by mid-2023, but a rebound has since taken placeWang suggests that the current tech cycle might gradually cool in the coming quarters, as historical patterns indicate.

Nonetheless, the broader application of AI on a global scale has the potential to extend the traditional technology cycle, enhancing positive spillover effects and continuously promoting export growth in AsiaA recent nationwide survey conducted in the U.S. has shown that the pace at which AI is being promoted exceeds prior trends observed with personal computers and the internetResearch from McKinsey has explored the growing demand scenarios for B2B and B2C applications—accounting for 70% of total demand—and concluded that the explosion of computational needs from data centers and smartphones could lead to drastic increases in AI computing and chip demands by 2030.

Wang emphasizes that AI is set to be the core driver of chip demand growth

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The current cycle is characterized by AI's transformative impact on the traditional consumer electronics industry, which in turn is expected to stimulate a demand for hardware upgradesThis presents a unique opportunity for the traditional consumer electronics chip market to benefit from this shift.

Further solidifying this viewpoint, market research and analytics firm Gartner projects a 14% increase in global semiconductor revenues by 2025. In the short term, memory and graphics processing units are expected to steer revenue growth for the sectorRajiv Pratap, a senior analyst at Gartner, notes that the driving forces behind this growth include sustained demand for AI-related semiconductors coupled with recovery in electronics production, while the automotive and industrial markets continue to face sluggish demand.

Samsung Electronics has also indicated that its current quarter earnings may face constraints due to weaker semiconductor business performanceNonetheless, the company intends to leverage AI-driven smartphones and other premium devices to propel growth.

In the context of these developments, the Chief Analyst for technology and telecommunications at the Economist Intelligence Unit, Tylian, states that AI has emerged as a vital driving force for semiconductor firms, particularly amid a slowdown in the consumer electronics marketHe predicts that while AI will remain a significant impetus this year, not all chip manufacturers will reap the benefits equallyCompanies like NVIDIA are positioned as significant winners in chip design, while Taiwan Semiconductor Manufacturing Company (TSMC) takes the lead in chip manufacturing, leaving others such as Samsung and Intel in a less favorable position.

In summary, the burgeoning world of AI is intricately linked to the semiconductor industry, both directly and indirectly shaping its future trajectoryAs we venture further into this AI-driven era, the semiconductor market is poised to adapt and evolve, potentially rekindling robust growth, albeit with vulnerabilities amid ongoing market dynamics.

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