“We at DelMorgan & Co. see semiconductors remaining at the heart of enterprise AI and digital infrastructure investment, even as the industry navigates familiar cyclicality.”
Executive Summary
The semiconductor industry in 2025 remains pivotal to enterprise AI and digital infrastructure, driven by robust demand for AI infrastructure, memory and advanced packaging. Despite the sector‘’s inherent cyclicality, capital investment, merger and acquisition (M&A) activity and valuations are thriving in high-growth segments. Non-AI markets, such as consumer electronics and legacy compute, exhibit softness, posing challenges for diversified players. Investors and acquirers must prioritize companies with resilient order pipelines, differentiated intellectual property (IP) and operational agility. Those firms that are adept at navigating supply chain constraints, export controls and technology transitions are best positioned to outperform in the coming quarters.
Policy and Macro Drivers
The CHIPS and Science Act continues to catalyze domestic semiconductor growth through tax incentives, subsidies and grants targeting advanced manufacturing and supply chain localization. Notably, incentives for qualified investments in semiconductor equipment and facilities are driving significant capital deployment. Recent proposals include expanding the Advanced Manufacturing Investment Tax Credit to 30% for projects commencing construction by the end of 2026. However, export controls and foreign entity restrictions are introducing complexity, while simultaneously creating opportunities for investment in domestic and allied markets. The Semiconductor Industry Association’s 2025 State of the Industry Report highlights a confluence of public policy and commercial investment, bolstering chip design, packaging and infrastructure development.
Sector Performers and M&A Signals
High-growth subsectors, particularly advanced packaging and specialty IP, are attracting strong interest from both strategic and financial buyers seeking to capitalize on AI-driven throughput and system efficiency gains. High-bandwidth memory (HBM), critical for training large-scale AI models, remains a top-performing segment. Automotive and industrial semiconductor companies, especially those focused on sensors, power management and embedded compute, are also gaining traction. Firms with differentiated IP or robust supply chain control are commanding premium valuations, reflecting market confidence in their ability to deliver sustained growth.
Risks and Valuation Pressures
Export controls and foreign entity restrictions continue to complicate global procurement and technology licensing, posing risks to operational efficiency. High capital intensity in segments like memory and advanced packaging could lead to margin compression if non-AI demand weakens or excess capacity emerges. Softness in consumer electronics and legacy compute markets may pressure firms with mixed product portfolios. Valuations remain volatile, particularly for companies with weak order backlogs or exposure to regulatory uncertainty, underscoring the need for disciplined risk assessment.
Strategic Outlook
Consolidation is expected to accelerate among advanced packaging firms, specialty fabs and IP asset owners, driven by strategic acquirers prioritizing energy efficiency, domestic content and low-latency design. Investors should focus on companies with clear AI exposure, resilient supply chains and differentiated technology to maximize returns. As policy incentives and export regulations gain clarity, firms with scale, execution discipline and strategic alignment with high-growth segments will secure advantages in both valuation and deal flow. The semiconductor sector’s centrality to AI and digital infrastructure ensures its continued prominence, provided companies adeptly navigate the evolving landscape.
About DelMorgan & Co. (delmorganco.com)
With over $300 billion of successful transactions in over 80 countries, DelMorgan‘s Investment Banking professionals have worked on some of the most challenging, most rewarding and highest profile transactions in the U.S. and around the globe. In the upcoming year, we expect more high-quality deal execution for more clients and welcome the opportunity to speak with companies interested in potentially selling their businesses or raising capital.
