Semiconductor industry outlook: The impact of AI and investment trends

The AI revolution has significantly influenced the semiconductor industry, driving new trends in venture capital (VC), private equity (PE), and mergers and acquisitions (M&A). The competitive landscape is dominated by global giants and influenced by geopolitical factors. Advancements in semiconductor materials and design research promise improvements in chip processing power and density.

For full details on the semiconductor industry, read the report 2024 Semiconductor Spotlight: AI Revolution Fuels New Investment in Chip Industry

Key takeaways

The following are key takeaways from the report.

AI innovation

The explosion of AI applications has led to a significant increase in investment in the semiconductor industry, with key trends including venture capital (VC), private equity (PE), and mergers and acquisitions (M&A) activity. However, data from Q1 2024 indicates a slowdown in VC activity, despite semiconductor startups still attracting significant investments.

Private equity

PE investment in semiconductors is relatively new, with firms closing more minority-stake investments than traditional majority-stake buyouts. The public sector's support and industry maturation may lead to greater PE involvement in semiconductor firms in the future.

VC investment

VC investment in the semiconductor industry has seen a slowdown in 2024 after a four-year surge, primarily due to geopolitical uncertainties. However, significant investments continue to flow into Chinese semiconductor startups, backed by state investors. Despite the slowdown in VC activity, the first quarter of 2024 witnessed strong VC exits, generating $7.2 billion across 10 deals.

M&A

Strategic M&A deals have been a priority for firms to stay competitive and expand their offerings. Cross-border investment activity has been affected by the geopolitical landscape, but dealmakers continue to engage in a high number of transactions with foreign parties compared to pre-pandemic years.

Increased demand

The rise of AI has led to increased demand for chips, which has positive effects on the raw materials, software, and hardware sectors. However, it remains to be seen if the industry can keep up with the rapid pace of AI expansion and adoption.