AI Growth Boosts Electronics Metal Demand, But Broader Semiconductor Market Faces Weak Recovery

AI

The explosive growth of Artificial Intelligence (AI) is undoubtedly driving demand for specific electronic metals, but the broader electronics market, particularly the semiconductor sector, is struggling with a slower-than-expected recovery. As we approach 2025, the demand outlook remains mixed, despite AI's role in pushing innovation and technological expansion.

AI Fuels Electronics Demand

This year, AI technologies, especially AI-powered chatbots and smartphones, gained widespread traction. Companies like Apple and Samsung have been rolling out their own AI systems, with Apple’s “Apple Intelligence” software joining Samsung’s Galaxy AI. At the same time, OpenAI's ChatGPT reached 200 million active weekly users, doubling from the previous year. These developments indicate the mainstreaming of AI tools in everyday life.

The continued growth of AI will be supported by the physical expansion of data centres and the increased demand for hardware capable of handling AI's vast data processing needs. This translates into higher demand for specialty materials that make up critical electronic components. As data centres require more energy-efficient solutions to process increasing data volumes, materials like gallium nitride (GaN) and indium phosphide (InP) will play a central role.

Gallium Nitride (GaN) and Indium Phosphide (InP) Boosted by AI Expansion

As AI technologies scale, the energy demands of data centres will rise significantly. According to research from Goldman Sachs, the data centre expansion needed to support AI could increase electricity consumption by up to 160% by 2030. This will likely spur greater demand for GaN-based power electronics, which are more energy-efficient than traditional silicon electronics. GaN-based devices generate less heat and can operate at higher temperatures, making them ideal for data centres where cooling accounts for up to 40% of energy consumption.

Another compound semiconductor, indium phosphide (InP), is expected to gain traction as well. InP is already used in data and telecom transceivers and is poised to play a key role in the future of 6G wireless and satellite communications networks. InP-based photonic integrated circuits enable faster, more energy-efficient data transfers, making them essential for the high-speed data transfers required by AI clusters in data centres. This has garnered attention from the U.S. government, with the CHIPS Act supporting multiple InP-related projects this year.

Wider Electronics Demand Faces Challenges

Despite the promising outlook for AI-driven growth in specific sectors, the broader semiconductor market is still grappling with weaker-than-expected recovery. Materion, a U.S.-based producer of specialty materials for electronics, reported slower-than-expected semiconductor recovery in its third-quarter results. The company, which manufactures materials for chip manufacturing, including tantalum sputtering targets and antimony chemicals, noted that while there is strong demand for high-performance chips used in computing, the market for 2025 remains uncertain.

The situation was mirrored by ASML, a major chip equipment manufacturer, which lowered its revenue forecast for 2025 from €30-40 billion to €30-35 billion. ASML highlighted that semiconductor manufacturers are curbing capacity expansions due to the ongoing weakness in chip demand recovery.

Semiconductor Shipments and Market Outlook

The global semiconductor industry witnessed a peak in silicon wafer shipments in 2022, driven by supply shortages and high demand for consumer electronics during the pandemic. However, shipments of silicon wafers—a key indicator of chip production—are expected to drop from 14,565 million square inches (MSI) in 2022 to 12,174 MSI in 2024. Although global silicon wafer shipments are projected to rise to 13,328 MSI in 2025, the recovery expected in 2024 has largely failed to materialize, indicating continued challenges in the broader electronics market.

Conclusion

The demand for electronic metals, particularly those used in AI and data centre technologies, is on the rise. However, the semiconductor sector as a whole is still experiencing a slow recovery, with uncertainty surrounding the broader electronics market heading into 2025. While AI's growth continues to offer opportunities for companies involved in the production of GaN and InP-based components, the overall demand picture for electronics remains mixed, with slower-than-expected recovery from the pandemic-induced boom.