The global semiconductor market is demonstrating signs of robust growth, with a 17.9% year-over-year rise in sales in January 2025 reaching $56.5 billion during the month, per the latest report of the Semiconductor Industry Association (SIA). This marked the ninth consecutive months of more than 17% year-over-year growth for semiconductor sales.

The robust sales growth is experienced across a wide range of microchips, including microprocessors, microcontrollers, memory chips, RFID modules, power management ICs, digital signal processors, security authentication modules, optical chips, edge AI controllers, and advanced driver assistance systems, among others.

Factors Driving the Semiconductor Market

The rise in microchip sales is driven by their growing demand by hyperscalers, cloud service providers, telecom, artificial intelligence, and data center customers who are dedicating a significant part of their capital expenditure to acquire more powerful chips.

Semiconductor - General Industry 5YR % Return

Semiconductor - General Industry 5YR % Return

Inventory normalization among industrial and automotive customers is also driving sales, particularly due to the strength in the Chinese electric vehicle market. Semiconductor manufacturers are also benefiting from increased sales and improved margins as easing inflation reduces pricing pressure.

America is Leading the Semiconductor Market Internationally

The SIA report mentioned that year-over-year sales were up in the Americas by 50.7%, Asia Pacific/All Other by 9.0%, China by 6.5%, and Japan by 5.7%, but were down in Europe by 6.4%. The massive growth in semiconductor sales in America can be attributed to the U.S. CHIPS Act incentivizing the semiconductor manufacturing companies that are shifting production back to the United States.

A report published collaboratively by SIA and BCG in May 2024 stated that the United States will capture 28% of global capital expenditures from 2024 to 2032 under the CHIPS Act regime. The report further suggested that the United States could have captured 9% of global capital expenditures only if the CHIPS Act was not implemented.

Since the U.S. CHIP Act has incentives for designing, developing and manufacturing semiconductor products, companies with or without fabrication facilities are to benefit from it. U.S.-based Semiconductor companies, including Intel INTC, Micron Technology MU, Texas Instruments TXN and Microchip Technology MCHP, have a huge scope to capitalize on these incentives.

According to a report by SIA, Intel, Micron Technology and Texas Instruments will receive grants of approximately $7.8 billion, $6.4 billion and $1.6 billion, respectively, under the CHIPS Act. Microchip Technology will receive a smaller grant of approximately $162 million for the expansion and modernization project for its microcontrollers and specialty mature-node semiconductors.

Challenges for Semiconductor Companies

The global semiconductor manufacturing and supply-chain landscape is dominated by companies based out of the United States, including Taiwan, South Korea, Japan and the Netherlands. The geopolitics around the semiconductor industry is mainly impacted by U.S. relations with Southeast Asian countries and China.

The United States and China’s tit-for-tat trade war is a major threat to the semiconductor industry. This is because the United States is the largest semiconductor manufacturing country, with China being its biggest importer. The trade war between the two countries is likely to escalate as the U.S. government imposes a new licensing requirement for semiconductor players, barring some of them from selling their products in China.

Most U.S.-based semiconductor companies operate fabless, relying on foundry-based companies like Taiwan Semiconductor Manufacturing Company and Samsung. This poses significant supply chain risks, given the presence of foundries in Southeast Asia where China dominates in the regional geopolitics.

Conclusion

The 17.9% increase in global semiconductor sales in January 2025 indicates a strong demand for microchips among hyperscalers, cloud service providers, telecom, artificial intelligence, automotive, industrial and data center customers. While geopolitical challenges remain a limiting factor for the industry, long-term prospects remain bright as semiconductors are being the fuel for AI, HPC, automotive and hyperscale innovations.

Of the leading players, Intel and Texas Instruments carry a Zacks Rank #3 (Hold) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Micron carries a Zacks Rank #4 (Sell) and Microchip Technology has a Zacks Rank #5 (Strong Sell) at present.

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