The PHLX Semiconductor Index (SOX) has surged over 6% since the beginning of the year, reflecting the market’s optimism towards the recovery of the semiconductor industry and booming AI demand. In this article, we dive deeper into semiconductor earnings reports and long-term outlook in the context of the global semiconductor cycle.

Key Points

  1. Earnings results and forecasts of major semiconductor companies reflect the semiconductor industry is back in an upcycle, with weak performance still observed in segments like automotive and industrials. Nvidia’s better-than-expected guidance confirms AI demand will continue to surge.

  2. Driven by demand in computing and data storage, wireless communication, and automotive electronics, the global semiconductor market is projected to continue its march towards the $1 trillion revenue mark by 2030.

  3. China's efforts to expand capacity in mature node chips is unlikely to disrupt supply and demand dynamics on the global scale, given potential escalation of export controls and tariffs by the US, as well as the fact that China’s mature process capacity expansion will mainly serve domestic demand and is likely to see slowdown.

  4. For the short term, the destocking phase is coming to an end in the semiconductor industry, bringing the industry back into an upward cycle. In the context of China's mature-process expansion, Taiwan stands to benefit.

Nvidia delivers another earnings beat!

Let’s begin with a recap of the stellar earnings report by chip giant Nvidia on February 21:

  1. For 2023 Q4, NVIDIA reported a GAAP revenue of $22.1 billion (prev: $18.12 billion), up 265% from a year ago (prev: 206%). Gross margin reached 76% (prev: 74%), with EPS at $4.93 (prev: $3.71), surpassing market expectations.

  2. Two core business segments saw significant growth: Data center revenue jumped to $18.4 billion (83.3% of total revenue), up 409% YoY, driven by strong demand for data center GPUs and reflecting explosive demand for generative AI and model training. Gaming revenue reached $2.87 billion (12.9% of total revenue), growing by 56% YoY, part of which from increased demand from Chinese companies stockpiling high-end GPUs in response to US export restrictions.

  3. Due to US restrictions on high-end chip sales to China, China's contribution to data center revenue was only in the single digits (4-6%), yet growth in other regions outside China remained robust.

  4. Nvidia also forecasted revenue for 2024 Q1 to range between $23.5-$24.5 billion, posting quarter-on-quarter growth and exceeding the $22.1 billion market consensus, bringing NVDA shares to historical highs in after-hours trading.


NVIDIA's earnings report and guidance reflect strong demand momentum from AI accelerator chips and AI servers. Earnings reports from other semiconductor companies across the supply chain also showed signs of improvement. This echoes our previous assessment alongside TSMC’s 2023 Q3 earnings call about the end to inventory adjustment and healthier inventory levels in the semiconductor industry. This viewpoint was further backed by related data releases for Q4.

Looking ahead, the semiconductor trend seems unstoppable. Below, we unpack probably two pressing questions investors might be asking regarding the future of the industry:

  • Where exactly will future growth momentum come from?
  • Are US trade restrictions and China's efforts to expand mature-process capacity cause for concern?

Semiconductor demand: Poised for rapid growth driven by three areas

Let's start with the demand side. Looking at the semiconductor market, as the short-term destocking phase is coming to an end, long-term growth is also expected to persist.

Estimates from McKinsey's updated report this January continued to project that the global semiconductor market would reach $1 trillion in annual revenue by 2030, representing a robust annual growth rate of 6-8%. Under this assumption, the average selling price (ASP) for semiconductors is expected to grow by 2% annually, and the average operating margin of 48 key companies in the semiconductor space is expected to stabilize at 25-30%.

Zooming in on market segments, automotive electronics, computing and data storage, and wireless communication are set to be key drivers of growth:

1. Automotive Electronics: Although the EV market has been facing short-term bottlenecks due to pricing and inadequate charging infrastructure, these problems are gradually improving as battery costs continue to decline and coverage of charging stations continues to climb. And as countries continue to move towards net-zero emissions, more cars will become electrified and more intelligent, a process that will generate more demand for automotive semiconductors in fields like advanced driver assistance systems (ADAS), electronic control units (ECU) for autonomous driving, battery management systems (BMS), and sensor components. McKinsey estimates that this will propel the automotive semiconductor market to nearly triple its current size, becoming the third-largest segment in the semiconductor market. Therefore, even though auto electronics may experience short-term inventory adjustments, their long-term contribution to the semiconductor market will remain significant.

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2. Computing and Data Storage: Key players in the semiconductor industry have expressed optimism about the prospects of AI. On top of the proliferation of AI tools, development of emerging technologies like VR and robotics also underscores the growing need for computational power and data storage. This trend will further drive growth in servers, cloud computing, and edge computing, making computing and data storage the largest market segment for semiconductors by 2030.

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