High-Tech: Riding the Wave but Ignoring the Current

Global high-tech production is projected to expand by +6.7% in 2025, a pace that would typically signal confidence and momentum. Yet, beneath that headline figure lies an uneven picture. The sector’s momentum is being driven disproportionately by demand for semiconductors, particularly those supporting artificial intelligence applications, while the broader landscape remains challenged by policy volatility, weak capital investment, and diverging regional strategies. This raises a central question: Can the semiconductor-led surge offset the wider structural weaknesses that continue to weigh on the high-tech industry?

AI Chips Drive the Sector

The high-tech sector’s biggest gains are concentrated in the production of electronic components and boards, a subsector that includes semiconductors. This segment is expected to demonstrate high single-digit growth globally this year, outpacing all other categories within the high-tech manufacturing domain.

There is a serious risk that if AI-driven semiconductor demand begins to normalize or falter, the high-tech sector lacks a secondary growth pillar of equivalent scale to absorb the shock.

Tariffs Down, Uncertainty Up

North America and Asia Outpace a Stagnant Europe

Certain economies are positioned to outperform in the current environment. China has accelerated its pursuit of chip self-sufficiency, investing aggressively in domestic fabs and equipment. Recent developments, such as Xiaomi’s reported success in developing a 3-nanometer system-on-chip, indicate that China is making incremental technological gains despite US restrictions on equipment and design tools. If sustained, this trajectory could allow China to close some of the performance and cost gaps that have long separated it from Taiwan and South Korea.

South Korea continues to benefit from its deep specialization in memory chips, including high-bandwidth memory (HBM), a key enabler of next-generation AI architectures. Firms such as SK Hynix and Samsung are expanding capacity, and although some production may relocate to avoid tariffs, the bulk is expected to remain domestic due to infrastructure advantages and workforce expertise.

Taiwan, meanwhile, retains its strategic dominance through TSMC, which maintains a near-monopoly in high-end chip production. Despite US efforts to attract some of this capacity, the vast majority of production is likely to remain onshore. The scale, complexity, and integration of Taiwan’s chip ecosystem would be difficult and expensive to replicate elsewhere.

In contrast, Canada, France, and the United Kingdom are likely to underperform. Canada faces a third consecutive year of electronics production contraction, driven by structural weaknesses in consumer electronics and a lack of domestic semiconductor capacity. France and Italy are also under pressure, with investment cuts by STMicroelectronics signaling a reduction in European chip ambitions in the face of global competition. The UK, whose electronics sector is disproportionately weighted toward precision instruments rather than semiconductors, may experience a moderate recovery in 2025, but its exposure to fast-growing AI chip demand remains limited.

The Investment Paradox

One of the most important dynamics in the current cycle is the decoupling between production growth and investment momentum. Semiconductor capacity is expanding, but investment in broader high-tech subsectors remains subdued, especially in regions like Europe and Japan. In Japan, the government has allocated substantial funding to its national chipmaker Rapidus, but private sector participation has been tepid. The reluctance reflects skepticism about the project’s commercial viability and suggests that industrial policy alone may be insufficient to restore competitiveness without market validation.

This disconnect raises broader strategic concerns. If capital continues to flow primarily toward politically shielded or AI-adjacent segments, the rest of the electronics sector may suffer from underinvestment. Over time, this could lead to fragility, bottlenecks, or misalignment between supply and actual demand.

Moreover, if countries prioritize national capacity over global efficiency (an outcome encouraged by “chip nationalism” and export controls), there is a risk of duplicated infrastructure, higher costs, and reduced innovation velocity. Such a divergence could have long-term implications for productivity across the high-tech supply chain.

Catalyst or Strategy?

At present, semiconductors appear capable of sustaining aggregate sector growth. But the sustainability of this reliance is questionable. The current AI wave is highly capital-intensive and dominated by a narrow set of firms and applications. Should AI demand begin to plateau, either due to energy constraints, saturation of infrastructure buildout, or shifting enterprise priorities, the shock to semiconductor production could be severe. In parallel, broader electronics categories have not demonstrated the resilience or adaptability needed to serve as a fallback for growth. Consumer demand remains tepid in many markets, and business investment outside the AI domain is sluggish.

One speculative scenario is that we may see a split within the sector: a “premium” track anchored in high-end chips and industrial electronics serving advanced economies, and a “commodity” track centered on low-margin consumer electronics and basic components, increasingly dominated by China and Southeast Asia. Such a split would have profound implications for labor markets, R&D flows, and trade policy.

Don’t Mistake Growth for Stability

The global high-tech sector cannot afford complacency. The strong headline growth expected in 2025 masks a precarious dependence on semiconductors, specifically those tied to the AI boom. While this demand surge has been a lifeline, it is far from a long-term growth strategy. The rest of the sector remains constrained by weak investment, fragile policy environments, and uncertain demand.

If AI demand holds, and if key players can expand capacity efficiently without provoking further trade retaliation, then the sector may transition into a more stable, high-performance growth path. But if any of those assumptions falter, the industry may find itself vulnerable, overleveraged on a single trend and underprepared for systemic shocks.

In such a context, strategic diversification (both technologically and geographically) will be essential. The next two years will test not just the strength of demand, but the sector’s ability to adapt.

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