Semiconductors have been described as the ‘new oil’ of the 21st century. They underpin every facet of technology and the unassuming computer chip has become a focus of national security.
Chances are, you may not even know what a semiconductor is, or how crucial a piece of technology it is to your everyday life. But to give you an idea, modern life runs on code, and code runs on chips. From a $20 electric toothbrush to a $200 million AI super-cluster, every device that senses, computes, stores, or communicates needs integrated circuits. In 2024, the industry’s revenue crossed the $600 billion mark for the first time, and analysts expect it to smash through $1 trillion by 2030, roughly the size oil hit at its 2008 peak.
Semiconductor stocks have been rising for years. In the past ten years the NVIDIA (NASDAQ: NVDA) share price has risen 18,520%. Advanced Micro Devices (NASDAQ: AMD) tells a similar tale with its share price up 3,900% in ten years.
This performance has been driven by surging demand for advanced chips powering artificial intelligence (AI), data centers, gaming, and more. The key question is whether this growth can realistically continue, or if these stocks are due for a correction.
#The Growing Importance of Semiconductors
In recent years, the rise of semiconductor stocks has been incredible. Anything and everything tech related requires computer chips - from PCs and gadgets to electric vehicles, medical robotics, and the data centers powering the cloud and AI.
The work-from-home trend coupled with a transition to electrification and technological advancements has accelerated growing demand for chips. High growth technologies including themes such as autonomous driving, AI, AR, 5G and 6G, automation and a shift to the cloud each contribute to the soaring demand for semiconductors.
Tightly Concentrated Supply
Demand for semiconductors covers a wide array of sectors, products, and companies, but the supply is very tightly concentrated. This can lead to bottlenecks in the supply chain, as has been highlighted in recent years.
Qualcomm, Advanced Micro Devices, NVIDIA, and the Taiwan Semiconductor Manufacturing Company are some of the recent beneficiaries of chip stock enthusiasts. But it’s TSMC that manufactures the chips for the majority of the world’s fabless chipmakers.
The rise in chip demand has led TSMC and its rival Samsung to heavily increase their capital expenditure to replace and add vital equipment. One of their key suppliers is ASML (NASDAQ: ASML) which makes semiconductor equipment such as extreme ultraviolet lithography machines. Disruption to any one of these companies causes a knock-on effect around the world.
Indeed, TSMC and Samsung account for 71% of the global foundry revenue share. Therefore, being so dependent on so few companies is a big concern for the global supply chain and a matter for national security.
#A Global Chip Shortage - Then and Now
Back in 2020, a series of shocks rattled the semiconductor supply chain. A winter storm in Texas caused power outages at major chip factories, a fire disrupted a key auto chip facility in Japan, and droughts in Taiwan strained water-intensive chip production. All this, layered on top of pandemic-induced shutdowns, sparked a global chip shortage that rippled across industries—from automakers to consumer electronics.
At the time, demand for chips was surging, driven by trends like remote work, the rise of electric vehicles (EVs), and early excitement around the metaverse. Semiconductor stocks climbed as investors scrambled to get exposure to what seemed like an essential and increasingly scarce commodity.
Fast forward to 2025, and the picture has evolved.
While the acute supply crunch has eased thanks to expanded production capacity and a more resilient supply chain, demand hasn’t slowed down. In fact, it’s been re-energized by the rapid growth of AI technologies, the rollout of 5G infrastructure, and continued innovation in EVs and autonomous driving. The U.S. CHIPS Act and similar initiatives globally have also led to billions in investments in domestic chip manufacturing.
That said, the semiconductor sector is still cyclical. After the pandemic-era surge, 2023 and parts of 2024 brought a correction—some companies saw excess inventory and slowing revenues. But more recently, there's been renewed momentum, especially among companies tied to AI, high-performance computing, and advanced manufacturing nodes.
#Investment Risks: Semiconductor Stocks
The semiconductor industry has seen a wave of investment and innovation in recent years, but that doesn’t mean it's risk-free. Here are the key concerns investors should keep on their radar:
1. Geopolitical Risk Still Looms
Taiwan Semiconductor Manufacturing Company (TSMC) still dominates global chip production, making geopolitical tensions between China and Taiwan a persistent risk. The U.S.–China tech rivalry also continues to influence export controls and supply chain shifts. Companies like NVIDIA and Qualcomm remain heavily reliant on Asian foundries, making them vulnerable to political shocks.
2. Shifting Supply Chain Dynamics
In response to past shortages, automakers and tech firms are forging direct relationships with chipmakers like TSMC and GlobalFoundries. This is disrupting the traditional client-manufacturer model and forcing chipmakers to prioritize high-volume or strategic clients.
3. Foundry Expansion Takes Time
Major players like Intel, TSMC, and Samsung have broken ground on new fabs across the U.S., Europe, and Asia—with some now operational or nearing completion. However, building and scaling a foundry still takes years and billions in capital. While global capacity is rising, demand for advanced chips (especially AI-related) continues to grow just as fast.
4. Big Tech Wants In-House Chips
Apple, Amazon, Google, and Meta are all investing in custom silicon design—mostly through in-house teams rather than building factories themselves. Apple leads with its M-series chips; Amazon designs its Graviton chips for AWS; and Google and Meta are working on chips for AI and data centers. For now, they still rely on partners like TSMC and AMD for manufacturing.
#Third-Generation Semiconductors: A High-Potential Frontier
One of the most promising growth areas in semiconductors is the shift from traditional silicon to third-generation materials like silicon carbide (SiC) and gallium nitride (GaN). These advanced materials enable faster, smaller, and more energy-efficient chips—ideal for high-performance applications.
Silicon Carbide (SiC) is gaining traction in electric vehicles, where it improves power efficiency and reduces cooling needs. Tesla already uses SiC in its powertrains, and the material is increasingly found in EV chargers, industrial power systems, and renewable energy storage.
Gallium Nitride (GaN) offers advantages for high-frequency and high-voltage applications, making it a strong fit for next-gen 5G/6G infrastructure, data centers, and compact power adapters.
We’re still in the early innings of this secular shift, and while the upside is big, so are the risks—especially with newer players and evolving standards.
#Are Semiconductor Stocks Overvalued?
Some semiconductor stocks may have run up too quickly, and many, including NVIDIA and AMD have seen substantial pullbacks from their peaks. Therefore, not every semiconductor company will thrive in the coming year.
The semiconductor industry remains vulnerable to geopolitical risks, particularly concerning Taiwan, a critical hub for chip manufacturing. Escalating tensions between the U.S. and China could disrupt supply chains and impact companies like NVIDIA and Broadcom.
Both NVIDIA and Broadcom have significant exposure to major clients. For instance, a substantial portion of Broadcom's revenue is derived from a few large customers, making it susceptible to fluctuations in their demand.
Potential interest rate hikes and inflationary pressures could impact tech stocks' valuations, leading to increased volatility in the sector.
Here are some of the top US-listed semiconductor stocks:
Nvidia Corporation (NASDAQ: NVDA)
Taiwan Semiconductor Manufacturing Co. (NYSE: TSM)
Broadcom Corporation (NASDAQ: AVGO)
Qualcomm (NASDAQ: QCOM)
Intel Corporation (NASDAQ: INTC)
Texas Instruments (NASDAQ: TXN)
Applied Materials (NASDAQ: AMAT)
Micron Technology (NASDAQ: MU)
STMicroelectronics NV (NYSE: STM)
NXP Semiconductors NV (NASDAQ: NXPI)
ASE Technology Holding Co. Ltd. (NYSE: ASX)
#Semiconductor ETFs
For those nervous of investing directly in individual semiconductor stocks, there are ETF options instead. These offer a way to diversify your portfolio and still enjoy the potential upside in investing in semiconductor stocks.
VanEck Semiconductor ETF (SMH)
iShares Semiconductor ETF (SOXX)
SPDR S&P Semiconductor ETF (XSD)
Invesco PHLX Semiconductor ETF (SOXQ)
Columbia Semiconductor and Technology ETF (SEMI)
Strive U.S. Semiconductor ETF (SHOC)
VanEck Fabless Semiconductor ETF (SMHX)
#Are Semiconductors Still a Smart Investment?
Semiconductors remain a foundational technology powering modern life, from smartphones to satellites. And while the sector carries risks, cyclicality, geopolitical tensions, and capital intensity among them, the long-term growth story is still compelling. For investors, that means doing your homework: not all chipmakers are created equal, and the winners of the next cycle may not be the same as the last.
While the semiconductor industry continues to grow, investors should exercise caution due to high valuations and external risks. Diversifying investments and focusing on companies with robust fundamentals and reasonable valuations may help mitigate potential downsides.