The development of AI will have a dual impact on the semiconductor industry.

To begin with, let us look back at the semiconductor industry's traditional model: most products flowed to manufacturers, who integrated them into electronic devices for sale to end consumers. This model is currently being disrupted by artificial intelligence.

The construction of data centers has caused the majority of semiconductor products to flow to enterprise clients, while the industry is simultaneously concentrating vast amounts of capital on expanding production capacity. This is arguably a risky move, as it threatens to trigger rapid shifts in supply and demand dynamics. Currently, semiconductor demand is largely driven by massive data center construction; however, this demand is unsustainable. Eventually, the pace of construction will slow, directly reversing the supply-demand balance from a shortage to a surplus and driving down prices. At that point, the semiconductor industry will face a host of troublesome issues:

1. A sharp decline in data center construction will lead to a precipitous drop in product demand—essentially, there will be no buyers.

2. The industry has seen a reduction in the market share of consumer-grade semiconductors—its traditional lifeblood—yet pivoting back from enterprise-grade to consumer-grade production is difficult; it is not a process that can be switched on instantly like turning a tap.

3. Intensifying competition and a collapse in profit margins—caused by overproduction and falling prices—will directly penalize companies that previously expanded capacity blindly.

The semiconductor industry is currently in a period that is simultaneously its most prosperous and its most perilous.