Semiconductor Supercycle: AI-Driven Chip Demand and India’s Position

30 Sep 2026

Tags: Science & Technology   S&T Developments   Technology indigenization

Source: The Indian Express

Context: Semicon India, the flagship conference of the India Semiconductor Mission (ISM) under the Ministry of Electronics and Information Technology, was held in New Delhi amid exceptionally strong global semiconductor demand.

• The current boom is being driven primarily by Artificial Intelligence (AI) and the large-scale infrastructure required to develop and deploy AI systems.
• Analysts describe this as a possible semiconductor “super-cycle” — a multi-year phase of investment and growth triggered by a fundamental technological shift that structurally increases demand.
• Earlier technology transitions associated with personal computers in the 1990s and smartphones in the 2010s generated similar periods of sustained semiconductor expansion.

What is Driving the Semiconductor Boom?

AI Data Centres

• Data centres are physical facilities containing servers, storage systems and networking equipment used to store and process large volumes of digital information.
• AI data centres require specialised computing infrastructure capable of handling the enormous computational workload generated by AI models.
• A major component is the AI accelerator, a specialised processor designed to perform the large number of calculations required to train and run AI models.

High-Bandwidth Memory

• AI accelerators require extremely rapid access to large volumes of data, creating demand for advanced memory technologies.
• Conventional memory is constrained partly by the physical distance between memory and the processor.
• High-Bandwidth Memory (HBM) addresses this problem by vertically stacking multiple layers of memory close to the processor, enabling much faster movement of data.
• HBM and processors are integrated using sophisticated advanced packaging technologies, making packaging an increasingly important part of AI-chip manufacturing.
• Major HBM Producers: The HBM market is concentrated among three major companies:
• SK Hynix — South Korea
• Samsung — South Korea
• Micron — United States

What is a Semiconductor “Super-Cycle”?

• A normal semiconductor cycle involves alternating periods of high demand, investment and capacity expansion followed by excess supply and weaker prices.
• A super-cycle refers to a prolonged period of structural demand growth caused by a major technological transformation.
• AI could generate such a cycle because it simultaneously increases demand for:
  • Advanced processors and accelerators.
  • High-bandwidth memory.
  • Advanced packaging.
  • Data centres and networking equipment.
  • Semiconductor manufacturing capacity.

How is AI Demand Being Secured?

• Memory manufacturers traditionally depended significantly on consumer electronics such as smartphones and personal computers.
• AI infrastructure is shifting demand towards business-to-business (B2B) procurement by large technology companies and data-centre operators.
• According to S&P Global, Microsoft, Amazon, Google and Meta plan to spend nearly $635 billion on AI infrastructure in 2026, including data centres.

Take-or-Pay Agreements

• Chipmakers are increasingly entering long-term take-or-pay contracts, under which customers commit to purchasing an agreed quantity of chips regardless of their immediate requirements.
• If customers fail to purchase the contracted quantity, they may have to pay substantial penalties.
• Such agreements provide semiconductor manufacturers with greater demand visibility and support capacity expansion.

Risks to the Super-Cycle

• AI infrastructure spending is highly concentrated among a relatively small number of technology companies.
• The sustainability of semiconductor demand will ultimately depend on whether AI products and services generate sufficient revenues and economic returns to justify continued infrastructure investment.
• Therefore, current investment does not automatically guarantee a prolonged super-cycle.

Where Does India Fit into the Semiconductor Value Chain?

• India Semiconductor Mission 1.0
  • Under ISM 1.0, India approved 12 semiconductor projects, with some packaging facilities beginning production.
  • India is yet to establish large-scale domestic fabrication of advanced semiconductor chips.
  • Its initial focus has therefore been on assembly, testing and packaging, which are important stages of the semiconductor value chain.
• Micron’s Sanand Facility
  • Micron's facility at Sanand, Gujarat, represents India's effort to develop semiconductor assembly and packaging capabilities.
  • The facility will process imported wafers used in chip production rather than manufacture the semiconductor wafers domestically.
  • India Semiconductor Mission 2.0
• ISM 2.0, launched in February 2026, seeks to build upon the manufacturing and packaging ecosystem created under the first phase.
  • Its initiatives include financial support for advanced packaging.
  • Another component focuses on research and development in chiplet technologies.

Limitations in India’s Current Position

• India's current role does not yet capture a substantial share of the profits associated with advanced chip manufacturing.
• Rising global demand for AI servers and data centres has also tightened memory supplies and contributed to higher memory prices.
• Capital-market trends have reflected the attractiveness of semiconductor-heavy economies such as Taiwan and South Korea, with some foreign investment withdrawals from Indian markets in 2026 reportedly linked to opportunities in these markets.

What are Chiplets?

• Conventional processors are generally manufactured as a large integrated chip on a single piece of silicon.
• Chiplet architecture divides a processor into smaller, specialised chip components that can be combined within a single package.
• This can potentially reduce manufacturing costs, improve design flexibility and reduce material wastage.
• Chiplets can therefore provide India with an additional opportunity to participate in advanced semiconductor technologies without immediately developing capabilities across the entire conventional chip-manufacturing chain.

Chip Design: Another Opportunity for India

• India has an established semiconductor design ecosystem, with nearly one-fifth of the global semiconductor workforce based in the country.
• This creates an opportunity to move beyond assembly and packaging towards higher-value activities such as chip architecture, design and specialised processor development.

Design-Linked Incentive

• Under the Design Linked Incentive (DLI) Scheme, Indian startups are being supported in developing semiconductor designs.
• Bengaluru-based Netrasemi, for example, is developing edge-AI processors for applications such as cameras and drones.

Edge AI

• Edge AI refers to performing AI computations directly on a device rather than sending data to a remote cloud server.
• It can provide:
  • Faster response times.
  • Lower dependence on internet connectivity.
  • Reduced data transmission.
  • Potentially greater privacy for sensitive data.

Emerging Semiconductor Value Chain

• India's opportunity extends beyond establishing fabrication plants to creating an integrated ecosystem involving:
  • Chip design.
  • Semiconductor packaging.
  • Testing and assembly.
  • Chiplets and advanced packaging.
  • AI processors.
  • Research and development.
  • Semiconductor talent.
• The acquisition of Bengaluru-based fabless semiconductor company C2i by Germany's Infineon illustrates the growing integration of Indian chip-design capabilities into global semiconductor value chains.

Significance for India

• Strategic autonomy: Domestic semiconductor capabilities can reduce dependence on concentrated global supply chains.
• Economic value addition: Moving from packaging towards design, advanced packaging and fabrication can increase India's share of semiconductor value.
• AI ecosystem: Domestic chip capabilities can support India's expanding AI and data-centre infrastructure.
• Employment and skills: Semiconductor design and manufacturing can generate high-skilled employment and strengthen India's technology workforce.
• Geopolitical resilience: A diversified semiconductor ecosystem can improve India's resilience to disruptions in global technology supply chains.

Conclusion: The AI revolution is transforming semiconductors from a conventional cyclical industry into a potentially structural growth sector. For India, the challenge is to move progressively from assembly and packaging towards design, advanced packaging, chiplets, research and eventually high-value manufacturing, thereby capturing a larger share of the emerging AI-driven semiconductor value chain.

 

Key Concepts for Prelims Semiconductor super-cycle: Prolonged structural growth in semiconductor demand following a major technological transformation. AI accelerator: Specialised processor designed to perform AI-related computations efficiently. HBM: Stacked high-speed memory placed close to processors to enable very high data-transfer rates. Advanced packaging: Techniques used to integrate processors, memory and other semiconductor components in sophisticated packages. Chiplet: A smaller specialised chip component that can be combined with other chiplets in one package. Fabless company: A semiconductor company that designs chips but outsources their physical manufacturing. Edge AI: AI processing performed on or near the device where data is generated rather than primarily in a remote cloud.