Underneath the AI optimism lurks some troubling trends for the chip sector

The semiconductor industry is experiencing a dramatic bifurcation, with shares of AI-focused chipmakers soaring while those tracking traditional markets struggle. Popular semiconductor funds like the VanEck Semiconductor ETF and iShares Semiconductor ETF are up 9% this year, driven by gains in AI powerhouses like Nvidia , Broadcom, and Arm Holdings . Yet, the AI chip narrative isn’t as comprehensive as it seems. SOXX 1Y mountain iShares Semiconductor ETF (SOXX) Citi Research projects AI will only account for 30% of chip sales by 2025. Taiwan Semiconductor ‘s recent earnings call epitomized this divide: while projecting AI revenues to double in 2025, they’re seeing minimal recovery in other markets. Analog chip makers like Analog Devices , NXP Semiconductors , and Texas Instruments face prolonged demand weakness, particularly in automotive and industrial sectors, according to JPMorgan analysts. They anticipate a more balanced supply/demand profile emerging in the second half of 2025. The sentiment was evident at the CES show to start the year, where companies like ON Semi , Mobileye and Microchip warned of continued market challenges. The smartphone and PC markets mirror this stagnation. SK Hynix recently warned of demand declines in smartphones and PCs, with growing Chinese competition. Oppenheimer remains skeptical about Windows 11 and AI PCs driving meaningful upgrades. Given their exposure to the space, Intel , AMD , and Qualcomm could remain caught in this cyclical downturn. Bottom Line: The semiconductor landscape is sharply divided. AI chips are flying high, while traditional chip sectors are struggling to find lift. While not a wholesale transformation, this trend reveals a significant market segmentation driven by artificial intelligence’s expanding technological footprint.