Capgemini: How Gen AI is Driving Semiconductor Demand

The Capgemini Research Institute’s latest report, The Semiconductor Industry in the AI Era: Innovating for Tomorrow’s Demands, highlights the significant role generative AI (Gen AI) is playing in driving demand for advanced semiconductor solutions.

The adoption of Gen AI, alongside other technologies like 5G, the Internet of Things (IoT), autonomous vehicles, augmented and virtual reality (AR/VR) and edge computing, is reshaping the semiconductor industry.

This wave of technological advancement requires chips that are not only more powerful but also highly efficient and customisable. Nearly three in five semiconductor manufacturers report that Gen AI, 5G or other cutting-edge communication protocols are directly influencing their strategies.

“We are at a pivotal moment for the semiconductor industry,” says Brett Bonthron, Executive Vice President and Global High-tech Industry Leader at Capgemini.

“Gen AI is driving accelerated demand for chips, and semiconductor companies face increasing demands from customers who want more personalised and software-centric experiences.”

Bridging the supply gap

Despite leading the charge in technological innovation, the semiconductor sector faces critical challenges.

Downstream industries, which rely on chips to create smarter and more efficient products, express concern over supply adequacy. Less than three in ten organisations find the chip supply sufficient to meet their needs.

Geopolitical tensions, trade restrictions and the push for supply chain sovereignty add to the uncertainty. To address these challenges, the industry must innovate both its products and its approach to procurement and supply chain management.

According to the report, demand for AI chips, custom silicon chips and memory-intensive chips is projected to rise further over the next year. Manufacturers are adopting new strategies to keep pace with this growth while also mitigating supply chain risks.

Custom design and R&D investment

One of the key approaches to managing the demand surge is a focus on in-house custom chip design.

By developing semiconductors tailored to specific client needs, manufacturers can reduce dependence on external vendors and protect intellectual property (IP). This approach also improves the compatibility between hardware and software, enhancing overall efficiency.

Innovations in chip design are advancing rapidly. Techniques such as extreme ultraviolet (EUV) lithography, smaller process nodes, 3D packaging and chiplet integration are enabling the development of chips that meet increasingly complex requirements.

To support this innovation, semiconductor companies anticipate a 10% rise in R&D budgets over the next two years.

Brett underlines the importance of this investment: “The industry should see this as an opportunity to ramp up production and adopt a ‘chip-to-industry’ approach that supports a full stack, ‘software-first’ set of capabilities.

"Investment in cutting-edge fabrication methods and design processes powered by AI and Gen AI will be key to meet the specialised needs of emerging applications.”

Equally critical, he adds, is the need for sustainable manufacturing processes and advanced security measures to safeguard IP.

Building resilience: Supply chain, security and sustainability

Capgemini’s report identifies supply chain resilience, security and sustainability as the top priorities for semiconductor manufacturers. More than half of organisations in the sector plan to make significant investments in these areas over the next two years.

In response to supply chain risks, manufacturers are moving towards domestic sourcing and nearshoring. Domestic sourcing is expected to rise from 40% to 47%, while nearshoring will grow by 4%. Investment in the US remains strong, with 75% of organisations planning expansion, compared to 59% in Europe.

Security is also a growing concern, with nearly 60% of semiconductor design firms prioritising cryptographic protections to safeguard their systems.

On the sustainability front, manufacturers are responding to customer demand for eco-friendly solutions. Energy conservation, water recycling, reduced use of toxic chemicals and waste minimisation are becoming integral to production processes. These efforts not only address environmental concerns but also align with industry goals for long-term growth.

By embracing sustainability, enhancing security and strengthening supply chains, semiconductor companies are positioning themselves to meet surging demand while driving innovation.

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