Royal Bank of Canada Capital Markets forecasts that semiconductor revenue driven by AI applications will grow from $220 billion in 2025 to over $550 billion by 2028. Analysts Srini Pajjuri and Grant Li from the bank noted in their report that the current market is facing supply constraints, with enterprise order lead times extending to 18 months, which ironically makes the industry outlook clearer. Infrastructure bottlenecks could delay some projects, but this may not necessarily be a negative factor; such constraints might help to elongate and smooth the spending cycle in the AI field. Despite recent progress in custom application-specific integrated circuits (ASICs), given the rapid iteration of AI technologies and the long design cycles for ASICs, the dominance of graphics processing units (GPUs) is expected to remain difficult to challenge in the short term.
Based on this market assessment, the financial institution initiated coverage on several semiconductor companies with “Outperform” ratings, including NVIDIA (NVDA), Micron Technology (MU), Marvell Technology (MRVL), Arm (ARM), Astera Labs (ALAB), ASML, Applied Materials, Lam Research, and Lattice Semiconductor. Meanwhile, Royal Bank of Canada assigned “Sector Perform” ratings to companies such as Broadcom, AMD, Intel, KLA, SanDisk, Qualcomm, Skyworks Solutions, and Silicon Laboratories.
The report further highlights that the demand for high-bandwidth memory (HBM) will become a core growth driver and is expected to mitigate the inherent cyclical volatility of the memory market. Analyst Pajjuri stated that AI workloads are evolving toward reinforcement learning and distributed inference, both of which place extremely high demands on memory performance. The upcoming fourth-generation iteration of HBM is another significant positive, with its average selling price expected to be 30% to 50% higher. The explosion of generative AI is also driving increased demand for high-capacity server memory modules and solid-state drives (SSDs). Although high memory prices may exert some pressure on the demand for PCs and smartphones, the memory industry is projected to remain undersupplied until 2027.
Aligned with the views of several financial institutions, the bank expects capital expenditure in the wafer fabrication equipment (WFE) sector to maintain strong growth over the next two years. Pajjuri added that the implementation of technology trends such as backside power delivery, advanced packaging, and 3D structures provides a basis to believe that the growth rate of the WFE market will reach at least high single-digit levels in the coming two years.
