I write a lot about how fast AI demand is growing. And we recently looked at a chart from Nvidia CEO Jensen Huang that hinted at just how big the AI infrastructure buildout could get.
But this week’s chart takes things a step further.
It gives us a much clearer picture of where that growth is coming from.
The Shifting Semiconductor Market
This week’s chart comes from McKinsey & Company.
For most people, it looks like a standard growth forecast.
The semiconductor industry is expected to expand from roughly $775 billion today to around $1.6 trillion by the end of the decade.
But that massive number is worth focusing on. Because if McKinsey is right, the semiconductor industry isn’t just growing…
It’s on track to become one of the largest industrial markets in the world.
At roughly $1.6 trillion, it would rival sectors like global automotive and energy equipment.
That’s not how most people think about semiconductors.
Historically, semiconductor demand has been spread across markets like smartphones, PCs, autos and industrials. And those markets don’t usually move in sync.
That’s still true.
But as you can see from the chart, a single category — computing and data storage — is expected to account for $460 billion of the semiconductor market’s increase.
That’s 55% of total industry growth from just one vertical.
Depending on how you measure it, computers and data center chips have historically made up somewhere in the range of 30% to 35% of total demand.
Now, that same category is driving more than half of the industry’s growth.
And the reason is simple.
It now includes AI infrastructure.
You see, AI isn’t just another end market alongside smartphones or autos. It’s becoming part of the underlying computing layer that those markets rely on.
And AI workloads use far more compute than traditional software. They need more processing power and more memory to run.
So demand isn’t just coming from more devices. It’s coming from more compute inside everything those devices do.
You can see this dynamic playing out in the numbers.
The industry still looks diversified on the surface. Chips are still going into phones, cars and industrial systems.
But computing is now doing most of the heavy lifting when it comes to growth. That tells you where the momentum is building.
However, there’s a counterargument to this interpretation.
Semiconductors have always been cyclical. As demand surges, supply catches up, and eventually things normalize.
We’ve seen this cycle play out across PCs, smartphones and memory. So it’s fair to assume this is just another version of it.
But what’s different today is what’s sitting underneath that demand.
Software, services and entire workflows are being rebuilt around AI. And as that happens, the infrastructure supporting it needs to expand to meet usage.
That’s what this chart is really showing.
Not just growth, but where that growth is accelerating.
And why.
Here’s My Take
AI is driving the fastest-growing part of the semiconductor market.
This suggests semiconductors are no longer just components tied to consumer cycles. They’re becoming the foundation of modern infrastructure.
Just like electricity or the internet, compute is now something the entire economy is being rebuilt around.
That’s what the market is starting to reflect.
And as this buildout continues, something else is starting to happen inside the very foundation of computing.
The chips powering this growth aren’t just scaling. They’re becoming specialized.
We’ll dig into that tomorrow.
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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