Executive Summary
At Future Horizons’ Semiconductor Industry Update conference, UK, founder and CEO Malcolm Penn made one thing clear: anyone hoping for a calm 2026 should abandon that expectation immediately. Geopolitical shocks, political volatility, economic fragility, and an overheated AI-driven semiconductor market are converging into a period of extreme uncertainty.
Executives are losing sleep over escalating US geopolitical assertiveness, widening trade coercion, tariff threats, and political interference in monetary policy. Combined with falling approval ratings, affordability pressures, and looming US midterms, instability is more likely to intensify as 2026 progresses. There is little sign of respite.
Despite widespread consensus forecasts projecting the global semiconductor market toward a $1 trillion milestone by 2030, Penn strongly disputes this outcome. The current boom, he argues, is structurally fragile and dangerously distorted by AI hype rather than sustainable fundamentals.
Mixed Market Reality
The semiconductor market’s 2025 performance was driven largely by rising average selling prices (ASPs), not unit growth. While AI data centers boomed, non-AI end markets remained weak. AI demand is masking excess capital expenditure, bloated inventories, and unresolved structural imbalances. Cracks are emerging in the “all things AI” narrative, as return on investment remains unclear despite unprecedented spending.
Entering 2026, the industry faces more of the same—plus a softening global economic outlook. US trade policy remains aggressive, with explicit threats of 100% tariffs for companies that do not manufacture domestically. The industry now faces a “battle of wills” between fundamentals and frenzy.
Penn urges a return to the semiconductor industry’s four core indicators: the global economy (IMF), unit shipments (WSTS), fab capacity (SEMI), and ASPs (WSTS).
Economic Backdrop: Resilient but Fragile
IMF data shows global GDP growth holding at 3.3% in early 2026, with 2027 forecasts unchanged at 3.2%. However, downside risks abound: an AI boom or crash, China’s property and debt problems, fiscal stress, and weakening policy credibility.
The US economy continues to defy gloomy expectations, buoyed by AI investment and equity markets dominated by the “Magnificent Seven.” The S&P 500’s surge contrasts sharply with rising inflation, slowing wage growth, weakening employment trends, and delayed tariff impacts. Bond markets remain calm—for now—but history suggests perception can change quickly.
Outside the US, the picture is weaker. Europe remains sluggish, China has entered deflation, and confidence among consumers and businesses is low. High interest rates persist amid political pressure on central banks, increasing long-term risks to economic stability.
Units, Capacity, and Capex Concerns
Semiconductor unit shipments are not yet in true recovery. November 2025 shipments were still below the 2022 peak, and recent rebounds were influenced by tariffs, memory shortages, and inventory building. Pandemic-era overinvestment continues to distort supply-demand balance.
Capital expenditure remains dangerously high. While bleeding-edge investments in logic and memory are defensible, overall capex has not fallen below long-term trend lines. China is the primary overspend culprit, accounting for 37% of global semiconductor capex in 2025—far above justifiable market share levels. Although much of this focuses on mature nodes, progress at 5nm and 7nm is evident, particularly from SMIC and Huawei.
ASPs: Boom with an Expiry Date
ASPs have rebounded sharply since the 2022 collapse, driven by AI demand and TSMC price increases. Logic, memory, and microcontrollers show growth, while analog remains flat. However, long-term ASP trends historically gravitate toward $1 per IC—Moore’s second law. Price booms do not last indefinitely, and rising competition and capacity will eventually apply downward pressure.
2026 Forecast: Growth with a Catch
The global semiconductor industry grew an unexpected 22% in 2025, reaching $769 billion—well above forecasts—thanks to an exceptionally strong Q3 and AI-driven demand. However, this growth was again ASP-led, not unit-driven, and therefore inherently unstable.
For 2026, Future Horizons forecasts 12% growth to $813 billion, with an 18% bullish scenario. However, Penn is blunt about the downside risk: a correction is inevitable. If AI demand falters or infrastructure fails to keep pace, growth could swing sharply negative, potentially falling by 8–12%. The next true supercycle is unlikely before 2029 and will depend heavily on disciplined capex.
AI Reality Check
Despite overwhelming hype, AI’s real economic value remains largely unproven. Hyperscale AI data centers consume between 1 and 20 gigawatts, while delivering uncertain returns. Investment runs into trillions, while ROI often measures in millions.
Experts caution that today’s AI systems do not truly reason or understand and remain prone to errors and hallucinations. The promised “killer app” has yet to emerge and may not arrive until around 2030. The industry risks confusing infrastructure build out with genuine market demand.
Bottom Line
The semiconductor industry is growing, but on fragile foundations. Excess capacity, geopolitical risk, economic uncertainty, and AI overinvestment create a volatile mix. Early recovery is possible in discretes, opto, and analog, but a data center–driven collapse would have severe consequences.
The message from Future Horizons is stark: do not get intoxicated by AI euphoria. Prepare now for a potential correction. The industry has no credible Plan B—and the hangover may arrive sooner than expected.
Malcolm Penn
21 January 2026