Semiconductor Firms Race to Secure Supply Chains Amid Growing AI Chip Demand Currently only two in five semiconductor firms are confident in their supply chain's robustness. To mitigate risks, companies are shifting towards domestic and regional sourcing

The global semiconductor industry is facing an accelerating demand for high-performance chips driven by Artificial Intelligence (AI) and Generative AI (Gen AI).

However, organizations reliant on chips are growing increasingly concerned about supply chain stability, as demand is projected to rise 29 per cent by the end of 2026—twice the rate expected by semiconductor manufacturers, as per the latest report of Capgemini Research Institute, 'The semiconductor industry in the AI era'.

With AI, 5G, autonomous vehicles, and IoT driving the need for more advanced chips, nearly three in five semiconductor firms report that these technologies are actively shaping their strategy.

"We are at a pivotal moment for the semiconductor industry. Gen AI is driving accelerated demand for chips and semiconductor companies face increasing demands from customers who want more personalized and software-centric experiences," explained Brett Bonthron, Global High-tech Industry Leader at Capgemini.

The race of AI-optimised chips

The report highlights that while 39 per cent of semiconductor firms anticipate an increased demand for custom AI chips over the next two years, downstream organizations are moving even faster—81 per cent expect their needs to rise by 21 per cent within just 12 months.

This has led many major tech players to design their own chips, a move that allows them to optimize performance while minimizing dependence on external suppliers.

At the same time, semiconductor firms are pushing the limits of innovation with cutting-edge chip architectures, extreme ultraviolet (EUV) lithography, 3D packaging, and chiplet integration. The industry's R&D budget is expected to increase by 10 per cent over the next two years, with nearly half of manufacturers already using AI and machine learning to enhance production processes.

While technological advancements are crucial, supply chain resilience remains a top priority. Currently, only two in five semiconductor firms are confident in their supply chain's robustness. To mitigate risks, companies are shifting towards domestic and regional sourcing. Over the next two years, the industry aims to increase its domestic sourcing from 40 per cent to 47 per cent and ramp up nearshoring by 4 per cent.

On the other hand, the U.S. is expected to see the most significant investment surge, with 74 per cent of semiconductor firms planning to expand operations there, compared to 59 per cent investing in Europe.

India's semiconductor push

Amid the global semiconductor race, India is positioning itself as a key player, backed by government initiatives and strategic investments. The India Semiconductor Mission (ISM), an independent division under Digital India Corporation, is spearheading efforts to develop the country's semiconductor ecosystem, from chip design to fabrication. The government's "Make in India" and "Atmanirbhar Bharat" (Self-Reliant India) initiatives have set the stage for a booming domestic chip industry.

Global semiconductor firms are taking note. NXP Semiconductors is investing over USD 1 billion to expand R&D operations in India, while Analog Devices is collaborating with Tata Group to explore local manufacturing opportunities. Meanwhile, Micron Technology's USD 2.75 billion assembly and testing facility in Gujarat is expected to create 5,000 direct jobs and an additional 15,000 community jobs.

India's semiconductor market was valued at USD 52 billion ( INR 4.5 trillion) in 2024 , and is expected to hit USD 103.4 billion (INR 9 trillion) by 2030, as per the latest report by India Electronics and Semiconductor Association (IESA)

Key growth drivers behind India's semiconductor industry include the rapid adoption of smartphones, electric vehicles, and renewable energy solutions—all of which rely on advanced semiconductor technology.

India's strategic push into chip manufacturing positions it as a potential alternative to traditional hubs like Taiwan and China.