The PHLX Semiconductor Index was gaining momentum going into Labor Day weekend, with the SOX up 13.8% year to date and 16.6% over the past three months. Industry revenues are up, with the Semiconductor Industry Association reporting that global sales are expected to reach $701 billion by the end of 2025, marking 11.2% growth over 2024 sales in the same period.
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Domestically, after three decades of global decline in chip manufacturing, the U.S. semiconductor industry is “re-industrializing America” through massive domestic investments, SIA reports.
“As of July 2025, companies in the semiconductor ecosystem have announced more than half a trillion dollars in private-sector investments to revitalize the U.S. chip ecosystem, setting in motion a projected tripling of U.S. chipmaking capacity by 2032,” the association notes. “These projects are projected to create and support over 500,000 American jobs.”
Key growth drivers include the burgeoning demand for generative AI, massive data center buildouts, and the increasing adoption of next-generation process technologies. Consider key semiconductor growth areas in personal computers and smartphones, where AI-enabled devices are expected to account for 50% of PC shipments and 30% of smartphone sales through 2025.
Yet significant growth risks are in play within the chip sector, most notably in supply chain vulnerabilities, which could lead to global semiconductor chip shortages and tariff-related cost hikes. Still unknown is how AI may impact the need for human skilled labor going forward.
Here’s a closer look at the forces at work on the semiconductor industry’s growth, both positive and negative, for the rest of 2025 and into 2026:
— Semiconductor industry challenges and risks.
— Is an AI bubble a threat to investors?
— Five semiconductor stocks to watch now.
Semiconductor Industry Challenges and Risks
U.S.-China Relations and Tariffs
Geopolitical tensions related to ongoing trade negotiations, especially between the U.S. and China, continue to affect global supply chains and add complexity to production planning. “Companies are responding by diversifying manufacturing and supply routes, which adds extra expenses, especially given the limited capacity at advanced fabs and the industry’s heavy reliance on TSMC for leading-edge chips,” says Gideon Ben Zvi, CEO at Israel-based Valens Semiconductor. TSMC is the familiar acronym for Taiwan Semiconductor Manufacturing Co. Ltd. (ticker: TSM), a key manufacturer of AI chips.
A Skilled-Labor Shortage
Even as AI advances in the chip manufacturing sector, the demand for talent is outpacing growth, leaving a significant talent gap in the semiconductor industry.
“While the industry is attracting more interest than ever, there’s still a shortage of experienced engineers, which can slow product development and limit the ability of companies to scale up or take advantage of new opportunities,” Ben Zvi says.
Ongoing Ex-China Global Tariff Risks
Tariffs remain a point of uncertainty among investors regarding a range of semiconductor companies.
“While there’s not a high degree of concern around tariffs impacting designers of high-value accelerators fabricated and shipped from Taiwan, like Nvidia or Advanced Micro Devices, there’s more concern about companies that have more globalized manufacturing operations across multiple countries, where yet-to-be-finalized trade agreements may present some degree of an overhang on the stocks,” says Chandler Willison, research analyst with M Science in Seattle.
Geopolitical Risks, Especially in Southeast Asia
Another potential industry impactor is any further escalation of tensions between China and Taiwan, particularly any issues that lead to military intervention between the two.
“The biggest sector risk is a low-probability, high-magnitude tail event, like China’s interference (or invasion) in Taiwan,” says Saurav Sen, senior bond analyst at New York-based Gimme Credit.
That scenario could lead to major risks for semiconductor companies like Taiwan Semiconductor. “TSMC is one of the most important companies in the world, as every major AI chip company gets at least a part of their flagship products manufactured there,” Sen says. “Sure, TSMC is diversifying its manufacturing base, but this will take some time.”
One of Chinese President Xi Jinping’s main priorities is to make China a global leader in AI by 2030, which means galvanizing an entire industry to establish homegrown, cutting-edge logic chip designs and manufacturing. “This will be no mean feat,” Sen says. “Consider there are only a handful of major logic chip design firms and just three major fabrication centers in the world (in Taiwan, Korea and the U.S.) that can churn out leading node chips at scale.”
There’s some probability that China will want to take the shortcut and “interfere” in Taiwan as opposed to building their homegrown semiconductor industry. “It’s hard to price in this risk,” Sen says. “We suspect many investors brush it under the carpet for now.”
Is an AI Bubble a Threat to Investors?
Semiconductor industry specialists say there’s also the risk of overinvestment in AI technologies. “If this dynamic shifts, the demand for AI chips could weaken, creating a ripple effect across the supply chain,” says Nic Adams, co-founder and CEO at Orcus, a West Palm Beach cybersecurity risk mitigation firm.
Another potential issue is the rising cost of building advanced fabrication facilities along with other critical chip manufacturing centers, which presents a substantial financial risk. “The capital expenditure required for leading-edge process technologies is becoming so immense that it is increasingly difficult for companies to invest in the latest technologies without significant government subsidies or partnerships,” Adams says.
Investors also face growing concerns about over-concentration in certain parts of the value chain. “When so much attention and capital are flowing to a few dominant players and verticals, it creates both competitive pressure and potential fragility in the market,” Ben Zvi says.
5 Semiconductor Stocks to Watch Now
With semiconductor stocks rising in late summer, here are a few key industry names to track if you’re looking to add to the semiconductor portion of your investment portfolio:
Arm Holdings PLC (ARM)
Year-to-date return: 12.1%
Arm Holdings is picking up steam, with three-quarters of its year-to-date gain accumulated in the past three months. “ARM appears particularly positive, having gained substantial share in the public cloud data center among multiple hyperscalers,” Willison says.
Advanced Micro Devices Inc. (AMD)
YTD return: 34.6%
AMD appears healthy across multiple business lines, with its personal computing products dominating against Intel Corp. (INTC) in the central processing unit, or CPU, space and growing more competitive against Nvidia in the graphics processing unit, or GPU, space.
“We’ve also seen impressive CPU share gain in the data center (market), particularly with its newest Turin EPYC CPUs,” Willison says. “Additionally, AMD’s accelerator deployment momentum appears strong.”
Broadcom Inc. (AVGO)
YTD return: 28.8%
Broadcom is another chip play that’s gaining ground, with AVGO shares returning 23.1% in the last 90 days.
“Broadcom is attractive due to its strong portfolio of high-performance networking and connectivity solutions, which are foundational to the buildout of AI infrastructure,” Adams says. “Its strategic acquisitions and diversified revenue streams provide a measure of stability and exposure to multiple high-growth technology trends.”
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
YTD return: 17.6%
Taiwan Semiconductor could be a compelling investment as the dominant foundry for the most advanced chips. The company’s share price is rising, up 19.8% over the past three months.
“Its essential role in fabricating the silicon for virtually all major AI players gives it an indispensable position in the value chain, and its aggressive capital expenditures demonstrate a commitment to maintaining this technological leadership,” Adams says.
Nvidia Corp. (NVDA)
YTD return: 29.7%
Nvidia continues to be a portfolio moneymaker in 2025, with its share price up 28.9% over the past three months.
The company continues to thrive as a leader in semiconductors and AI, demonstrating impressive growth numbers (with a $4.1 trillion market capitalization) and carving out a significant presence in the lucrative AI hardware/software markets. Flexing its muscles further, NVDA is expanding into other potentially major growth markets, such as autos, robotics and quantum computing.
Nvidia recorded a whopping $46.7 billion in revenue for its most recent quarter, up 56% from the comparable quarter last year. Look to data center sales for further growth, as Nvidia also reported 56% quarterly revenue growth within that category, representing a huge chunk of overall sales.
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Semiconductor Stock Forecast for the Rest of 2025 originally appeared on usnews.com
Update 09/02/25: This story was published at an earlier date and has been updated with new information.
