The Chip Insider®–How chips got to $1T

Summary: How chips got to $1T in 2026…by up-shifting from a Cost-Driven to a Value-Driven business model. By now, I’m sure you’ve heard $1T … 4-years ahead of schedule… the data now shows we are in the Cost-to-Value inflection I’ve been writing about for some time.

The key point here is not to be the frog that gets boiled in the hot pot of water as the temperature rises at an unnoticeably slow rate… The last time there was a major inflection in semiconductor growth ... Supply-side cost drivers came into process complexity… The economics of Moore’s Law was grounded in planar processes. All of a sudden chip processes were going vertical. Hence areal costs were rising at an unsustainable rate. The supply-side water was coming to a boil, which was being reflected in an inflection of equipment sales growth… There were two emergent trends here: One was the emergence of hyper-scalars… Two, the demand curve was shifting out from three demand drivers… smartphones, the internet, and AI training… The latter two being hidden hot-plates under the warming demand-side water.

Origins of the $1T target: Back in 2019, SEMI’s Ajit Manocha… No one saw 2026 coming. There had to be a major inflection, and it had to be because the chip industry had shifted from a Cost-Driven to a Value-Driven business model with Nvidia leading the vanguard.

The data shows a critical inflection in the late 2010s. Between 1995 and 2019, IC sales grew at a 4.4% CAGR. Between 2019 and 2026, the IC sales grew at a 20.7% CAGR! … But did we sell that many more chips? NO! … That means that value, expressed in chip prices rose... So value was increasing by leaps and bounds.

As for revenue-per-square inch of silicon, a similar story emerges: Between 1995 and 2019, the RPSI of silicon slid … Between 2019 and 2026, they grew … What about units-per-square inch of silicon, which is another good measure of value? Between 1995 and 2019, the … the total number of chips on a square inch of silicon more than doubled in this early period. This and ASPs demonstrate the value chasing cost down model. Designers were not adding more value with more transistors and hence, area. This process reversed between 2019 and 2026 …

Clearly there has been an inflection from a from a Cost-Driven to a Value-Driven business model. The key thing for strategists is to shift your organization’s mindset and operational reactiveness to value up. You can be a modern Ford or GM. The choice is yours.

“Cost is important... Value is decisive.”
– G. Dan Hutcheson