AI demand accelerates chip sector growth forecast despite trade tariff concerns creating supply chain headwinds.

J.P. Morgan analysts forecast that the semiconductor industry will post in-line or slightly better second-quarter results, fueled by strong artificial intelligence (AI) demand, early signs of a cyclical recovery, and inventory pull-ins related to tariffs. However, the firm warns that trade tensions and potential new tariffs could dampen momentum in the second half of 2025.

The analyst outlook reflects a significant shift in earnings momentum. Approximately 80-85% of semiconductor and semiconductor equipment companies covered by the bank saw earnings upgrades in Q1 2025, a sharp rise from 30-50% in previous years. This trend is expected to persist through Q2, supported by ongoing AI infrastructure investment and robust demand for accelerated computing, with cloud datacenter capital expenditures projected to grow 40% year-over-year.

The AI-driven upcycle is expected to benefit major chipmakers significantly. Nvidia (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO), and Marvell Technology (NASDAQ:MRVL) are seen as major beneficiaries of this upswing. J.P. Morgan also favors companies tied to AI, chip design, and semiconductor equipment, highlighting names like KLA Corp (NASDAQ:KLAC) and Synopsys Inc (F:SNPS). While wafer fab equipment (WFE) spending is expected to remain flat this year, long-term growth is seen as supported by the rising complexity of chip manufacturing.

Despite the optimism, analysts remain cautious about several headwinds. Consumer-facing sectors such as smartphones and PCs may soften, while industrial and automotive segments are likely to show subdued cyclical recovery. Analysts added that while markets appear complacent about trade risks, these could trigger a short-term pullback, potentially offsetting gains from positive industry cycles.

With AI demand shaping the next wave of growth, investors are advised to remain selective in chip stocks amid a shifting global trade landscape. The key challenge for the remainder of 2025 will be navigating tariff uncertainty while capitalizing on the underlying strength in AI-driven infrastructure investment.