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Semiconductor firms across the industry are struggling to keep up as AI is driving huge demand for semiconductor technology.
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Read moreThe industry is poised to reach $1 trillion in annual revenue by 2028, more than double its market size in 2020 (see figure 1).1 This explosive growth is fueled by the soaring demand for advanced chips — particularly those powering AI applications across cloud data centers, consumer electronics, self-driving vehicles and telecom networks. Yet the AI boom is straining key segments of the semiconductor supply chain: the growth in AI computing and storage infrastructure demand is outpacing the ability to produce crucial components like high-bandwidth memory chips and advanced 3D chip packaging.
Unlike prior cycles, today’s bottlenecks in specialized memory and packaging are proving stubborn and long-lasting. High-end memory and chiplet-based packages require massive capital and lengthy lead times to scale, and these constraints mean that supply-demand imbalances in critical AI hardware may persist for years to come. In short, the industry faces a new reality where supply can’t rapidly flex to meet demand, forcing companies to rethink how they secure the essentials for growth.
Fab capacity growth is not expected to keep pace. Preliminary forecasts suggest that capacity expansion will lag demand by a significant margin, particularly in advanced nodes and packaging. This widening gap underscores the urgency for targeted investments and ecosystem collaboration to address structural constraints in the supply chain.
Figure 1: Global semiconductor market revenue ($b)¹
Compounding the supply crunch is a far tougher environment for M&A. After a wave of blockbuster deals in 2015-16, global semiconductor dealmaking has slowed dramatically. Several high-profile megadeals were halted by regulators on antitrust or national security grounds — including multiple multibillion-dollar transactions involving leading processor and IP firms that ultimately failed to secure approval. As regulators maintained a firm stance, 2023 saw total semiconductor M&A value fall to around $15 billion — the lowest level in 10 years (see figure 2).2
Figure 2: Global semiconductor M&A deal value by year ($b)²
With cross-border mergers especially fraught, companies have shifted to alternative growth strategies that don’t depend on traditional large-scale acquisitions. The result is a more surgical approach to deals and a greater emphasis on organic and collaborative investments. In this challenging landscape, semiconductor leaders are rebalancing their playbooks — doubling down on talent and innovation, shoring up supply chains and pursuing targeted partnerships — to capture the historic AI-driven opportunity while managing its risks.
Facing these complex headwinds, semiconductor firms can adopt the multi-pronged strategy that leading firms have already embraced.
Leading contract chipmaker GlobalFoundries (GF) has illustrated the power of precision M&A in recent years. In 2025, GF made a bold move beyond pure-play manufacturing by acquiring the MIPS business — a pioneer in processor IP — bringing in a portfolio of proven reduced instruction set computer (RISC) processor designs and a team of skilled engineers. Then in early 2026, GF announced a deal to buy the ARC microprocessor business from Synopsys, uniting two complementary chip architectures under one roof. By integrating MIPS and ARC, GF aims to offer more differentiated, full-stack solutions for applications like AI at the edge, rather than just fabricating others’ designs. This pair of tuck-in acquisitions (far smaller than an attempted 2021 bid for GF by a rival foundry) exemplifies how a company can secure critical IP and talent without the complexity of a megamerger. The moves strengthen GF’s long-term innovation pipeline and signal its evolution from a contract manufacturer to a more vertically integrated player capturing greater value up the stack.
The semiconductor companies most likely to thrive in this era will be those that balance bold growth with strategic resiliency. They will keep innovation tightly aligned to key applications, build world-class talent pipelines, fortify and localize supply chains and leverage targeted M&A and partnerships.
By executing these fronts in parallel, semiconductor leaders can seize the upside of the AI revolution while buffering against its uncertainties. The path will likely bring twists and challenges, but companies that prioritize resilience — in their people, supply networks and innovation models — will likely position themselves to capture the historic opportunities of this new supercycle. Those that adapt and collaborate most effectively are poised to secure the inside track for the decades of transformative growth that lie ahead.
Sebastian Boetticher, Avinash Akella, Rahul Bajaj, Deanika Preuss and Aarushi Gupta of Ernst & Young LLP contributed to this article.
Driven by surging AI-related chip demand, the semiconductor industry is set to reach $1 trillion in global revenue by 2028.4 Persistent shortages, capital allocation shifts and regulatory changes are reshaping the industry’s dynamics. To thrive, it’s essential that semiconductor firms prioritize talent, supply chain resiliency, innovation, precision M&A, strategic partnerships and agility to secure sustainable growth in a rapidly evolving technological landscape.
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