Altiryus, senior financial analyst, walks you through how AI infrastructure demands push semiconductor markets toward unprecedented growth. The global semiconductor industry is approaching a historic milestone, with the World Semiconductor Trade Statistics projecting that the market will reach $975.5 billion in 2026, edging closer to the $1 trillion threshold.
The HBM Revolution
Memory sector growth is forecast at 39.4%, making it the fastest-growing category within semiconductors. The industry finds itself locked in an HBM Supercycle, where massive data throughput requirements make specialized memory as valuable as processors themselves.
SK Hynix and Samsung Electronics are ramping up production of HBM4, a technology that offers double the bandwidth of its predecessors. This advancement addresses the critical bottleneck that limits overall system performance due to memory speed.
Memory prices surged in 2025 and are likely to increase further as demand continues rising. Supply constraints persist despite aggressive capacity expansion plans from major manufacturers.
Manufacturing Leadership Intensifies
Taiwan Semiconductor Manufacturing Company successfully scaled its 2nm process to meet what the CEO describes as “infinite” demand. This represents a critical technological achievement enabling the next generation of high-performance computing.
Nvidia recently announced full production of its “Rubin” architecture, delivering a 5x performance leap over the previous Blackwell generation. This advancement is made possible through TSMC’s manufacturing capabilities.
The relationship between chip designers, such as Nvidia, and foundries like TSMC creates a robust ecosystem. Designers push performance boundaries while manufacturers solve the complex physics of producing these advanced designs.
Equipment Makers Capitalize
ASML saw its shares rise 15.2% to start the year as analysts substantially raised their price targets. The company is expected to benefit significantly from the capacity expansion planned for 2026 and 2027.
Bernstein raised ASML’s price target from € 800 to € 1,300, implying roughly a 24% upside from recent trading levels. The firm expects ASML to benefit from the upcoming DRAM supercycle.
ASML holds a virtual monopoly on extreme ultraviolet lithography machines, which are required to manufacture the most advanced chips. This unique position creates pricing power and ensures strong visibility of demand.
AI Drives Structural Demand
The current growth differs fundamentally from previous semiconductor cycles. Rather than consumer-driven cycles in PCs and smartphones, AI infrastructure creates structural rather than cyclical demand.
Physical AI represents the next frontier, integrating reasoning-based models into robotics, humanoids, and autonomous vehicles. This expansion beyond digital applications multiplies semiconductor content requirements.
Data center buildouts continue accelerating as hyperscalers compete for AI capabilities. Amazon, Google, Microsoft, and Meta are spending billions on infrastructure that requires cutting-edge semiconductors.
Chip Design Innovation Accelerates
Chiplet architectures gain adoption as companies seek performance improvements without relying solely on process node shrinks. This modular approach enables the mixing of different manufacturing processes within a single package.
Advanced packaging technologies are becoming increasingly important as traditional scaling approaches reach physical limits. Three-dimensional chip stacking enables higher performance in smaller footprints.
Custom silicon designed for specific AI workloads proliferates across major technology companies. Google, Amazon, and Microsoft all develop proprietary chips optimized for their unique requirements.
Photonics integration promises revolutionary bandwidth improvements for data center interconnects. Silicon photonics could eventually replace electrical connections for chip-to-chip communication.
Energy and Sustainability Concerns
The energy requirements for AI infrastructure are staggering, resulting in a secondary surge in nuclear and renewable energy investments. The “vampire effect” refers to how AI chip production consumes manufacturing capacity previously allocated to automotive and consumer electronics.
Semiconductor manufacturing requires enormous amounts of water and electricity. Environmental considerations may eventually constrain expansion in certain regions.
Geographic Concentration Risks
Taiwan produces the majority of the world’s most advanced semiconductors, creating a geopolitical risk that governments are increasingly recognizing. This drives efforts to establish manufacturing capacity in other regions.
U.S. government incentives, as outlined in the CHIPS Act, aim to bring advanced manufacturing to American soil. However, building cutting-edge fabrication facilities requires years and represents enormous capital investments.
European initiatives also aim to increase semiconductor self-sufficiency. The EU recognizes that digital sovereignty requires domestic capabilities in chip manufacturing.
Market Performance Reflects Optimism
Micron Technology jumped 16.3% year-to-date while SK Hynix and Samsung Electronics rose 11.5% and 15.9% respectively. These memory-focused companies benefit most directly from AI-driven demand.
Intel shares gained 7.6% despite the company’s challenges in advanced manufacturing. Investors appear optimistic about turnaround efforts and government support.
The VanEck Semiconductor ETF rallied approximately 4% to start 2026, building on a nearly 49% gain in 2025. This sustained performance demonstrates investor conviction.
The Road Ahead
Analysts expect 26.3% year-over-year growth for the semiconductor industry in 2026. This aggressive projection assumes continued investment in AI infrastructure and tightness in the memory market.
Supply chain resilience will be tested as manufacturers rush to expand their capacity. Equipment lead times remain extended, and skilled labor shortages constrain expansion efforts across all major production regions.
