INDUSTRY OUTLOOK Power electronics outlook 2026: Overcapacity, AI load, and the geopolitics of the supply chain

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Wide bandgap semiconductors remain central to electrification's long-term trajectory, but the industry is navigating a SiC correction cycle, an unexpected surge in AI-driven power demand, and deepening supply chain realignment — all at the same time.

Power electronics entered 2026 in an unusual position: structurally indispensable to nearly every major technology transition under way, yet operationally under pressure from overinvestment, softening demand in its largest near-term market, and a set of requirements from AI infrastructure that the industry's existing architectures were not designed to meet.

The global power electronics market, valued at around $51 billion in 2025 and forecast to reach $102.49 billion by 2032, remains one of the most consequential segments in semiconductor engineering. But the path through the next two years is more complicated than the headline figures suggest.

Three interconnected pressures define the industry's situation heading into 2026. The silicon carbide (SiC) sector is working through the consequences of a capital expenditure boom that outpaced the electric vehicle market's actual ramp-up. Data centers, reshaped by AI workloads, have emerged as a major new demand driver with power requirements that differ fundamentally from anything the industry has previously engineered for at scale. And the supply chain is being restructured around geopolitical risk in ways that carry direct implications for device qualification, sourcing strategy, and design lead times.

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SiC overcapacity meets a slower EV ramp

Between 2019 and 2024, the power SiC industry went through an unprecedented wave of capital investment, driven by confident projections of battery electric vehicle adoption. What followed was a textbook capacity overshoot. According to Yole Group's analysis, upstream process utilization rates had dropped to around 50% by 2025, with device lines running at approximately 70%. The downturn is expected to persist until 2027–2028, at which point deferred investment and genuine demand growth are expected to restore equilibrium.

The demand shortfall is directly linked to the EV market's failure to grow as fast as the supply chain had priced in. High vehicle costs and inadequate charging infrastructure dampened consumer uptake, prompting many automakers to extend the life of hybrid powertrains rather than commit fully to battery-electric platforms. Hybrids carry less power electronics content than full EVs, which meant lower-than-expected SiC MOSFET demand, particularly for the traction inverter applications that had been the primary justification for capex.

None of this alters the long-term case for SiC. IDTechEx forecasts the power electronics market for electric vehicles to roughly triple, reaching $42 billion by 2036, with SiC central to that growth through continued penetration of traction inverters and 800V platform adoption. What the correction has done is accelerate pressure on cost reduction, which points directly to the transition from 150mm to 200mm (8-inch) wafers.

Device-level progress has continued regardless of utilization rates. In late 2025, onsemi unveiled its EliteSiC M3e platform, a planar MOSFET architecture claiming a 30% reduction in conduction losses and a 50% reduction in turn-off losses versus the previous generation. Infineon's CoolSiC G2 MOSFETs, targeting multi-level topologies in data center power supply units, offer up to 20% better power density with integrated gate drivers designed to minimize switching losses in high-frequency operation. Both developments reflect an industry using the correction period to push performance rather than simply wait for volume to return.

Manufacturing process intelligence is also advancing, with Applied Materials' PROVision 10 system using deep-learning-based defect detection to identify basal plane dislocations and other SiC crystal growth defects with around 99% accuracy, enabling prediction of wafer failure before slicing begins. The claimed result is a 30% reduction in yield detraction, which is a meaningful improvement in an industry where raw material costs remain one of the biggest obstacles to cost-competitive scaling.

As for GaN, the material will continue to dominate compact, high-frequency consumer power supplies and is making inroads into lower-voltage onboard charging in EVs. The Changan Qiyuan E07, expected to reach market in 2026 with a GaN-based onboard charger from Navitas, is a notable first deployment, with a stated power density of 6 kW/L against an industry norm closer to 2 kW/L.

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The new AI infrastructure load category

The most consequential near-term demand driver for power electronics is not EVs but data centers, and specifically the AI-optimized hyperscale facilities commissioned at pace since 2023. Critical power demand for data centers is expected to nearly double between 2023 and 2026, reaching around 96 GW globally, and AI operations alone are projected to account for over 40% of that load.

From a power engineering perspective, these facilities present a qualitatively different problem from conventional large industrial loads. Research published in Energies in December 2025 characterizes AI data centers as a distinct load category: high power density, large and rapid power transients, and power quality profiles that create grid integration challenges. When thousands of server racks with non-linear power supplies operate simultaneously, harmonic distortion accumulates and propagates into local distribution networks. Bloomberg sensor data cited in the research found measurable power quality degradation within 20 miles of major data center clusters.

Unlike aggregated residential demand, which benefits from the statistical smoothing of millions of uncorrelated consumers, a single AI data center represents a large, highly correlated single-point load. Cold starts, planned shutdowns, and workload transitions generate power oscillations that, without adequate fault ride-through capability at the grid interface, can exacerbate rather than merely reflect grid disturbances. Grid planners in ERCOT are already pricing in anticipated data center expansion, as peak demand is projected to grow from 85 GW to 150 GW by 2030.

For engineers, the design brief this creates differs substantially from what an EV inverter or renewable energy converter demands. High-efficiency DC-DC conversion at rack level, tight bus architecture, harmonic filtering at scale, and grid-interface converters with robust fault ride-through are all problems that the data center market is forcing into sharper focus.

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Supply chain realignment

The power device supply chain remains dominated by European, U.S., and Japanese manufacturers — Infineon, STMicroelectronics, onsemi, Vishay, Mitsubishi Electric, and Fuji Electric among them — but dependence on Chinese manufacturers and end-system customers has grown substantially. Yole Group analysts have noted that the question of whether Western companies can maintain access to China's market is genuinely unresolved, and that the answer will materially affect revenue projections across the industry.

In response, companies are adopting dual-sourcing strategies that maintain at least one qualified supplier outside China. This carries engineering overhead because footprint differences between suppliers can affect PCB layout, and re-qualification of power modules for different device sources adds time and cost to development cycles.

Meanwhile, reshoring is increasing. In December 2024, the U.S. Department of Commerce approved up to $225 million in financing for Bosch's $1.9 billion SiC manufacturing facility in Roseville, California. This is no doubt a significant commitment, but one whose production timeline remains contingent on demand recovery. Several European projects face similar pressures, with economic difficulties on the continent weighing on industrial investment in automotive and energy manufacturing.

Tariff policy adds further uncertainty as U.S. import duties and broader geopolitical friction between major economies are reshaping procurement decisions in ways that do not always align with engineering preferences. The practical effect for design teams is that component availability windows have become less predictable, and the case for engaging with multiple regional supply chains earlier in the design process has strengthened considerably.

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Ultimately, due to these converging factors, the power electronics industry has an unusually clear long-term demand picture. Electrification, renewable energy, and AI infrastructure are all structurally power electronics-intensive, and navigating a near-term period in which the timing of those demand curves, the cost trajectories of enabling materials, and the stability of its supply chains are all in flux simultaneously. Engineers will need to find ways to design around that uncertainty without losing sight of the device and architecture decisions that will define system performance when volume returns.