SEMICONDUCTOR INDUSTRY Foundry market outlook 2025: AI and advanced technologies drive growth

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The foundry market will grow 20 % in 2025, driven by AI chips and TSMC’s advanced nodes. Mature nodes lag, while geopolitical shifts reshape supply chains. AI and advanced packaging will sustain long-term growth.

The global semiconductor foundry market is set for strong growth in 2025, with revenue expected to rise by 20 %, driven by surging demand for artificial intelligence (AI) chips and the continued adoption of advanced manufacturing technologies. Taiwan Semiconductor Manufacturing Co. (TSMC) is poised to be the biggest beneficiary, leveraging its leadership in 3nm and 5nm nodes, along with advanced packaging techniques like chip-on-wafer-on-substrate (CoWoS).

While AI-related demand dominates foundry capacity, traditional semiconductor applications — including consumer electronics, automotive, and IoT - are projected to recover gradually. However, mature process nodes (28nm and above) will experience a slower rebound. Geopolitical tensions and supply chain shifts add complexity to the industry, but long-term fundamentals remain strong, with a projected compound annual growth rate (CAGR) of 13 – 15 % through 2028.

AI is Dominating Chip Demand

The rise of generative AI and large language models (LLMs) has led to a structural shift in semiconductor demand. Data centers and cloud service providers are accelerating investments in AI accelerators, increasing orders for NVIDIA, AMD, and custom silicon chips.

• TSMC’s AI-related revenue is projected to exceed 20 % of its total sales in 2025, up from 15 % in 2024.

• 3nm and 5/4nm processes are operating at near-full utilization, fueled by NVIDIA’s Hopper and Blackwell GPUs, Apple’s A19 Bionic, and AMD’s MI400 series.

• Edge AI applications in smartphones and autonomous vehicles are increasing wafer demand, further driving the adoption of heterogeneous integration and advanced packaging.

BASIC KNOWLEDGE

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While AI is the primary growth driver, traditional semiconductor sectors are showing mixed signals. Consumer electronics and automotive industries, heavily reliant on mature process nodes, are still navigating inventory corrections. Automotive chip inventories at major IDMs like Infineon and NXP remain high, delaying outsourcing orders and suppressing 8-inch wafer utilization.

According to TrendForce, mature node utilization will reach ~70 % in 2025 — a notable improvement from 2024 but still below the >90 % utilization levels of advanced nodes.

TSMC Continues to Lead Advanced Nodes

TSMC maintains a strong technological edge, with its 3nm process generating $6.99 billion in Q4 2024 revenue, a 2.4x year-over-year increase. The company is on track to launch 2nm production in the second half of 2025, with six major customers already committing to the process. TSMC’s 2025 capital expenditures will range from $38 - 42 billion, a 41 % increase from 2024, aimed at expanding 3nm/2nm capacity and CoWoS packaging.

TSMC’s Arizona fab began N4 production in early 2025, achieving yield rates comparable to its Taiwanese facilities. Additional capacity in Japan (Kumamoto) and Germany (Dresden) will further diversify supply chains. Despite rising costs from overseas expansion and 2nm R&D, TSMC expects to maintain a 53 % gross margin, supported by premium pricing on AI and high-performance computing (HPC) chips.

While demand for advanced nodes (≤5nm) remains strong, mature process nodes (28nm and above) continue to struggle due to weak end-market demand and capacity expansions by Chinese foundries. Global 28nm capacity is expected to grow by 6 % in 2025, but utilization rates will remain at 65 – 70 %. SMIC and UMC face pricing pressure as China ramps up 28nm/40nm production, leading to 5 – 10 % price declines. Infineon’s new Dresden fab and other IDMs’ in-house expansions are reducing the need for foundry outsourcing, delaying a full recovery until 2026.

In response to geopolitical shifts, Western nations are increasing semiconductor investments to reduce reliance on Taiwan. TSMC received $6.6 billion in CHIPS Act funding to support its Arizona fabs. European OEMs such as STMicroelectronics and NXP now source 20 – 25 % of mature-node wafers from Chinese foundries, up from less than 10 % in 2023. Despite these shifts, 92 % of sub-7nm production remains concentrated in Taiwan, keeping geopolitical risks high. New fab constructions will increase global capacity by 6.6 % in 2025, with Japan and the U.S. leading investment efforts. However, over 70 % of new capacity targets advanced nodes, leaving mature-node overcapacity unresolved.

E-BOOK

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Strong Outlook for 2025 and Beyond

The foundry industry’s growth through 2025 and beyond will be driven by three key trends. Advanced node expansion will continue with 3nm/2nm adoption for AI, HPC, and next-generation smartphones. Packaging innovation, including CoWoS, chiplet architectures, and 3D integration, will be critical as Moore’s Law slows down. Geopolitical realignment will reshape supply chains as onshoring efforts in the U.S., Japan, and Europe accelerate, though Taiwan will remain dominant in leading-edge nodes.

While macroeconomic factors like inflation and high interest rates may dampen consumer electronics demand, AI’s explosive growth ensures strong foundry performance. TSMC is well-positioned to capture the bulk of this expansion, thanks to its advanced process leadership and packaging expertise. In the longer term, AI chips, advanced packaging, and silicon photonics will be the key growth areas, keeping the foundry sector at the core of global technological innovation.

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