Artificial intelligence technology has semiconductor leaders more optimistic about 2025, but headwinds may come from geopolitical and talent retention issues.

These are some of the predictions in the 20th annual Global Semiconductor Outlook report released by US audit, tax and consulting firm KPMG and the Global Semiconductor Alliance (GSA).

Some 92% of semiconductor executives surveyed predict growth for the industry as a whole in 2025.

With demand for chips set to continue to grow due to advances in AI, cloud, data centers, wireless communications and automotive applications, the latest data from KPMG and GSA shows that semiconductor executives are clearly optimistic about 2025.

The KPMG Semiconductor Industry Confidence Index rose to 59 from 54 in 2023, indicating increased optimism (values above 50 indicate a more positive rather than negative outlook) and showing increased confidence in the following factors: company revenue growth, profitability growth, workforce growth, research and development (R&D) spending and capital expenditures.

"AI underpins the industry's short-term growth and revenue expectations," Mark Gibson, KPMG's technology, media and telecommunications industry leader, said in a statement. "The upside in the industry in the short term is clear, but companies that can manage their supply chains and attract and retain talent will be well-positioned to sustain and benefit from the AI boom."

Despite the general optimism, executives still expect significant challenges in 2025, including geopolitical territorialism (such as tariffs and trade restrictions) and ongoing talent issues within the industry. (President-elect Donald Trump has vowed to impose tariffs on his first day in office, January 20.)

As demand for chips continues to grow, strengthening supply chain resilience and flexibility and bolstering talent development and retention will be critical. Navigating this complexity in 2025 will require an adaptive strategy.

In the fourth quarter of 2024, KPMG and GSA conducted the landmark 20th annual Global Semiconductor Industry Survey, gathering insights from 156 semiconductor executives on the industry's outlook for 2025 and beyond. More than half of the respondents were from companies with annual revenues of $1 billion or more.

Semiconductor executives are optimistic about 2025 across all factors, with the confidence index increasing 5 points year-over-year (from 54 to 59). Interestingly, smaller companies (defined as organizations with less than $100 million in annual revenue) have the most optimistic outlook.

Overall, all semiconductor companies have positive confidence index scores, with smaller companies being the most optimistic about 2025, as they are in the early stages of development and may see opportunities to increase revenue quickly.

The companies participating in the survey were large companies (with annual revenue of $1 billion or more), 58 mid-sized companies (with annual revenue of $100 million to $999 million), and 68 small companies (with annual revenue of less than $100 million).

Semiconductor executives are very optimistic about revenue growth for their companies and the industry as a whole, with more than a third predicting revenue growth of at least 10%.

The vast majority (86%) of respondents expect their company's revenue to grow in 2025, with nearly half (46%) expecting growth of more than 10%. 92% of respondents predict revenue growth for the industry as a whole, while a third (36%) predict revenue growth of more than 10%.

For the first time in the Outlook's history, AI becomes the most important semiconductor revenue driver, replacing automotive, which held the top spot for the past two years.

As a result, microprocessors, including graphics processing units (GPUs) 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 expected to have the greatest impact on the industry over the next three years. Other major revenue drivers expected in 2025 include cloud/datacenter (moving to second), wireless communications (remaining third), and automotive (dropping to fourth, previously the top revenue driver).

Geopolitical issues, especially territorial tensions and trade restrictions such as tariffs, are the most significant issues affecting the industry's supply chain. Talent risk remains a persistent concern as chip demand surges.

While territorialism (including tariffs and trade restrictions) tied with talent risk as the top issue facing the industry over the next three years, territorialism is clearly the biggest issue for large companies with annual revenues of $1 billion or more.

Semiconductor executives surveyed identified armed conflict and tariffs as the two most concerning geopolitical issues that could impact the semiconductor ecosystem over the next two years. Government subsidies and nationalization of semiconductor technology also ranked high.

In response, semiconductor leaders are increasing geographic diversity to improve supply chain resiliency. Making the supply chain more flexible and adaptable to geopolitical changes (associated with talent development and retention) was the top strategic priority, ranking 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) gain ground in the industry.

While the majority of executives (39%) still see competition for talent as the primary impact on the industry over the next three years, the emergence of new competitors has become an almost equally important concern for executives (35%), indicating a shift in the industry outlook.

In contrast, only 19% of semiconductor executives expressed concern about the emergence of new competitors last year.

"Tech giants and established semiconductor companies are beginning to compete for market share, with continuous technological development and optimization of AI chips aimed at enhancing AI training and inference capabilities and providing alternatives," Lincoln Clark, KPMG's global semiconductor leader, said in a statement. "As competition in the industry becomes increasingly fierce, significant investment and cutting-edge strategies are essential for companies to not only survive, but thrive in this rapidly evolving environment."

Source: Content compiled from KPMG

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