Geopolitics and AI will affect the chip industry in 2025 | KPMG
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AI technology is making semiconductor leaders more optimistic about 2025, but headwinds could come from geopolitical and talent retention concerns.
Those are some of the predictions in KPMG‘s 20th annual Global Semiconductor Outlook report from the U.S. audit, tax and advisory firm as well as the Global Semiconductor Alliance (GSA).
About 92% of the semiconductor executives interviewed for the survey forecasted overall industry growth in 2025.
With promises of ongoing demand for chips thanks to AI, cloud, data centers, wireless communication and automotive applications, new data from KPMG and GSA reveals significant optimism for 2025 among semiconductor executives.
The KPMG Semiconductor Industry Confidence Index rose to 59, up from 54 in 2023, indicating increased optimism (a value above 50 indicates a more positive outlook than negative), and showcasing bolstered confidence across the following factors: Company revenue growth, profitability growth, workforce growth, research and development (R&D) spending, and capital expenditures.
“AI underpins the industry’s near-term growth and revenue expectations,” said KPMG technology media & telecommunications leader Mark Gibson, in a statement. “The upward trajectory for the industry in the short-term is clear, but the companies that can manage their supply chains and attract and retain talent will be the ones well-positioned to sustain and benefit from the AI boom.”
Despite widespread optimism, executives still anticipate significant challenges in 2025, including geopolitical territorialism—such as tariffs and trade restrictions—and ongoing talent issues within the industry. (President elect Donald Trump is vowing to impose tariffs on his first day in office on January 20).
Strengthening supply chain resilience and flexibility, along with enhancing talent development and retention, will be crucial as demand for chips continues to grow. Navigating this complex landscape in 2025 will require adaptive strategies.
About the survey
In the fourth quarter of 2024, KPMG and the GSA conducted the milestone 20th annual global semiconductor industry survey, capturing insights from 156 semiconductor executives about their outlook for the industry in 2025 and beyond. More than half of the respondents were from companies with $1 billion or more in annual revenue.
Semiconductor executives have positive outlooks for 2025 across all factors, with a five-point Confidence Index increase year-over-year (from 54 to 59). Interestingly, the smaller companies, defined as the organizations with less than $100 million in annual revenue, have the most positive outlook.
Across the board, all semiconductor companies have positive Confidence Index scores, with smaller companies displaying the most optimism for 2025, potentially seeing opportunities for rapid revenue increases due to their earlier stages of development.
Among those participating in the survey, there were 58 large companies ($1 billion or more in annual revenue); 54 mid-size companies ($100 million to $999 million in annual revenue); and 68 small companies (less than $100 million in annual revenue).
Semiconductor executives are very optimistic about their company and the overall industry revenue growth, with more than one third predicting revenue growth by at least 10%.
The overwhelming majority (86%) anticipate their company’s revenue will grow in 2025, with almost half (46%) expecting growth to exceed 10%. And 92% forecast overall industry revenue growth, and one-third (36%) predict industry revenue growth of more than 10%.
For the first time in the history of the outlook, AI is the most important semiconductor revenue driver, displacing automotive, which held the top spot for the past two years.
As a result, microprocessors, including graphics processing units (GPUs) used for AI, are seen as the leading product opportunity for industry growth, ahead of memory and sensors/MEMs.
AI enablers, such as high bandwidth memory, are the production technology that is projected to have the greatest impact on the industry over the next three years. Other key revenue drivers expected in 2025 include cloud/data centers (rose to 2nd place), wireless communications (remained in 3rd place), and automotive (dropped to 4th place, previously the top revenue driver).
Geopolitical concerns, particularly territorial tensions and trade restrictions like tariffs, are the most important issues shaping the industry’s supply chains. Talent risk remains a persistent concern as chip demand surges.
Territorialism (including tariffs and trade restrictions) tied with talent risk as the biggest issue facing the industry over the next three years. However, territorialism was the clear-cut biggest issue among large companies with $1 billion or more in annual revenue.
Semiconductor executives surveyed view armed conflicts and tariffs as the two most concerning geopolitical matters that could affect the semiconductor ecosystem over the next two years. Government subsidies and the nationalization of semiconductor technology also rank near the top.
In response, semiconductor leaders are increasing geographic diversity to improve supply chain resiliency. Making the supply chain more flexible and adaptable to geopolitical changes (tied with talent development and retention) is the top strategic priority, after being named second in last year’s survey.
Executives are also on high alert for disruption as non-traditional semiconductor companies (tech giants, platform companies, and automotive companies) carve out their own place in the industry.
While most executives (39%) still view competition for talent as the primary impact to the industry over the next three years, the emergence of new competitors has become an almost equally significant concern among execs (35%), signaling a shift in the industry’s outlook.
To compare, last year only 19% of semiconductor execs cited the emergence of new competitors as a concern.
“Tech giants and established semiconductor players are starting to battle for market share, with ongoing technical developments and optimization of chips for AI aiming to enhance and provide alternatives for AI training and inferencing capabilities,” said KPMG global semiconductor leader Lincoln Clark, in a statement. “As the industry becomes more competitive, significant investments and cutting-edge strategies will be essential for companies to not only survive but thrive in this rapidly evolving landscape.”
The full Global Semiconductor Industry Outlook report will be released in early 2025.
