Silicon Photonics Capacity Expands as AI Data Centre Demand Accelerates

Silicon Photonics

Silicon photonics capacity is expanding rapidly as artificial intelligence data centres require faster, higher-bandwidth and lower-latency connections between processors. Semiconductor firms are increasing investment as SiPh technology moves from telecoms and enterprise networks into hyperscale AI infrastructure.

The shift reflects a structural change in data centre architecture. Large AI clusters need optical interconnects that can move massive volumes of data with lower energy consumption than traditional copper-based systems.

Silicon photonics capacity growth is therefore becoming a materials story as well as a semiconductor story. While silicon wafers form the base platform, high-performance SiPh components also rely on indium phosphide, gallium arsenide, gallium nitride, germanium compounds and, in some cases, lithium niobate.

AI Workloads Push Optical Interconnects Beyond Copper

AI workloads are increasing data centre scale and network complexity, forcing hyperscalers to adopt technologies that reduce latency and energy use per bit. This is accelerating the replacement of copper in high-speed data communications equipment.

Industry spending on data centre switches for AI back-end networks is now forecast to exceed $100 billion by 2030. The upgraded outlook reflects rising demand from agentic AI, physical AI, humanoid robots, autonomous vehicles and military systems.

This growth increases demand for optical transceivers, modulators, photodiodes, lasers and high-speed detection systems. These components are closely tied to minor metals and compound semiconductor materials that support faster optical transmission.

Tower and STMicroelectronics Scale SiPh Platforms

Tower Semiconductor is working with Coherent on high-speed data transmission using a silicon modulator built through a production-ready SiPh process. The work targets next-generation optical transceivers for AI data centre applications.

Tower is also investing heavily in silicon germanium products that support its SiPh platform. The company raised its 2026 capital expenditure budget for SiPh and silicon germanium by $270 million, in addition to the $650 million announced in late November.

STMicroelectronics is also expanding aggressively. The company plans to quadruple SiPh production capacity by 2027, supported by long-term capacity reservation commitments from customers.

STMicro recently entered high-volume production for its SiPh-based PIC100 platform. The platform is used by hyperscalers for optical interconnection in data centres and AI clusters, and it is designed to reduce signal loss while improving modulator, photodiode and chip-to-fibre performance.

The Metalnomist Commentary

Silicon photonics capacity is becoming a hidden bottleneck in AI infrastructure. As optical interconnects scale, demand for indium, gallium, germanium and lithium niobate-linked materials will become more strategically important to the semiconductor supply chain.

SiGe Capacity Expansion Accelerates as AI Data Centres Shift to Optical Networking

GlobalFoundries

SiGe capacity is becoming a critical bottleneck as artificial intelligence data centres move from copper interconnects toward optical networking. GlobalFoundries is expanding silicon germanium capacity to meet rising demand from customers building high-speed optical connectivity systems.

SiGe capacity at GlobalFoundries’ Vermont fabrication plant is already oversubscribed into 2027. The company said demand has reached an inflection point as AI workloads drive higher bandwidth, power efficiency and data transmission requirements.

SiGe capacity matters because silicon germanium technology supports key components in optical transceivers. These devices allow data centres to move information faster, cleaner and with less energy loss across large computing clusters.

The expansion reflects a wider shift in semiconductor materials. AI infrastructure is no longer only a story about graphics processors and advanced logic chips. It increasingly depends on photonics, optical transceivers and specialty semiconductor materials such as germanium.

Optical Networking Pushes SiGe Into a Strategic Role

AI data centres are increasing compute density and power consumption, forcing operators to rethink how data moves across networks. Copper interconnects face limits in reach, bandwidth density and energy efficiency.

Optical networking addresses those limits. It enables higher-speed data transfer across longer distances while improving system efficiency.

This shift is lifting demand for silicon photonics and SiGe technology. These materials are used in pluggable optical transceivers that convert high-speed electrical signals into optical signals and back again.

GlobalFoundries said SiGe is used in limiting amplifiers, transimpedance amplifiers and laser drivers. These components support signal amplification, conversion and cleaner data transmission inside data centre networks.

Transimpedance amplifiers and drivers are required in most data centre connections. As optical networking deployments grow, unit demand for these components is expected to increase sharply.

Satellite communications are also increasing SiGe usage. However, AI data centre optical networking is now the main growth signal attracting market attention.

Customer Prepayments and Government Support Shape Expansion

GlobalFoundries expects to double silicon photonics revenue in 2026. The company is targeting a silicon photonics revenue run rate above $1bn by the end of 2028 and $2bn in 2030.

GF already operates 300mm and 200mm silicon photonics and SiGe manufacturing facilities in New York and Singapore, with additional capacity in Germany. It also has a major US footprint in Vermont and New York.

The company increased annual wafer capacity to 2.7mn 300mm wafer equivalents in 2025 from 2.2mn in 2020. It also has an installed base of 1.6mn 200mm wafers per year.

GlobalFoundries has previously announced plans to invest more than $12bn in its New York and Vermont sites over the next decade. But future capacity growth will be tied closely to customer demand, prepayments and government financing.

That model is important. Semiconductor capacity expansion is capital-intensive, and customers increasingly need to help secure the supply chains they depend on.

Government grants and tax incentives are also becoming essential. AI, photonics, semiconductors and critical materials are now treated as strategic infrastructure, not only commercial technology.

For materials markets, the signal is clear. Germanium demand could gain support from AI-driven optical networking, especially as silicon photonics and SiGe devices become more important to data centre performance.

The Metalnomist Commentary

GlobalFoundries’ SiGe expansion shows that AI supply chains are moving deeper into specialty semiconductor materials. The next bottleneck may not be compute chips alone, but the optical and germanium-linked technologies needed to connect them efficiently.

 

Global Germanium Demand Soars as Buyers Seek New Supply and Alternatives

The U.S. Department of Defense (DoD)

With rising demand for germanium in defense and advanced computing, global consumers are seeking alternatives as China’s export restrictions have tightened supply. Germanium’s applications in artificial intelligence (AI) and autonomous vehicles have driven increased consumption, especially for its use in high-performance computing and infrared optics. AI systems benefit from silicon-germanium's ability to operate at higher frequencies and lower power, making it critical in modern technological advancements.

Germanium Supply Chain Concerns and Strategic Moves

The U.S. Department of Defense (DoD) is actively working to secure a sustainable germanium supply. The DoD has teamed up with LightPath Technologies to replace germanium in some of its applications, especially in optics, in a bid to reduce supply chain vulnerabilities. Meanwhile, other initiatives focus on increasing germanium consumption for defense purposes. The DoD is investing $14.4 million in 5N Plus, a Canadian semiconductor materials firm, to expand its capacity for producing germanium wafers for solar cells, ensuring continued supply for defense and satellite industries.

Producers are also responding to the supply crunch. Companies in Australia and Canada are exploring germanium-rich mining projects, while Hong Kong Sinomine Rare Metals is pushing to commercialize germanium production at its copper smelting line in Namibia. Belgium’s Umicore, meanwhile, has secured a deal with STL1 in the Democratic Republic of Congo to optimize domestic refining of germanium, further diversifying its global supply.

The rising price of germanium is likely to drive more refining and recycling initiatives, unless alternative materials become more widely adopted in its key applications.

LEO Semiconductor Demand Rises as US-China Space Race Accelerates

LEO chip

LEO semiconductor demand is accelerating as low earth orbit satellite deployment expands and the US-China space technology race intensifies. Greater satellite density is increasing the semiconductor content required for communications, sensing, computing and power management.

LEO semiconductor demand is also creating new opportunities for advanced materials including gallium nitride, silicon germanium and indium phosphide. These materials support high-frequency communications, radio-frequency power, photonics and other functions where conventional silicon can face performance limits.

LEO semiconductor demand is moving beyond traditional government space programmes as private capital enters satellite broadband, direct device connectivity and potential orbital data centres. The shift is increasing launch frequency and expanding the commercial market for space-qualified electronics.

The development has strategic implications for gallium and indium supply chains. Higher deployment of GaN and InP devices could increase demand for high-purity materials already considered strategically sensitive.

GaN and InP Gain From Higher Satellite Semiconductor Intensity

Modern LEO constellations require increasingly sophisticated radio-frequency chips, optical communications devices, sensors and power electronics.

GaN is particularly important for RF power amplifiers because it performs efficiently at high frequencies and power levels. This makes it suitable for satellite communications, phased-array antennas and future 6G networks integrating space, air and ground infrastructure.

China is building more domestic capability across this value chain as US technology controls increase pressure for semiconductor self-sufficiency.

CETC-linked companies are already supplying advanced components for Chinese spacecraft and communications systems. Recent mass production of millions of GaN RF chips indicates that China is moving some advanced compound semiconductor technology from specialised programmes toward higher-volume deployment.

Indium phosphide could benefit from another part of the satellite market. InP is important for high-speed optical communications and photonic systems, which could become increasingly valuable as satellite networks move larger volumes of data.

Silicon germanium also offers advantages in high-frequency and radiation-sensitive electronics, adding another specialty materials route into the expanding space semiconductor market.

The result is a broader materials opportunity. Satellite growth is no longer only about aluminium structures, titanium components and propulsion materials; semiconductor-grade gallium, indium and germanium are becoming increasingly important.

Orbital Manufacturing Could Open a New Semiconductor Investment Cycle

The US is also considering greater policy support for semiconductor manufacturing in space. Proposed legislation would clarify that semiconductor manufacturing in LEO can qualify for incentives under the CHIPS and Science Act.

The objective reflects growing concern that China could gain an early advantage in orbital manufacturing.

Microgravity manufacturing is attracting interest because some semiconductor materials could potentially be produced with fewer defects and improved uniformity compared with terrestrial processes.

Private companies are accelerating that development. SpaceX, Blue Origin, Google and specialist manufacturers are exploring concepts ranging from orbital data centres to in-space semiconductor production.

The economic model of the space industry is also changing. Commercial investment now represents a much larger share of total space spending than government budgets, increasing the pace at which new technologies can move from development into deployment.

Reusable rockets, lighter satellites and higher-volume manufacturing have reduced the cost of deploying large constellations. Advanced antennas and semiconductor systems originally developed for military applications are also moving into commercial markets.

For metals and materials suppliers, this creates another high-growth demand channel. Aerospace-grade titanium and nickel alloys remain important, but the next phase of the space economy will increasingly depend on advanced semiconductor materials and high-purity minor metals.

The Metalnomist Commentary

The LEO race is becoming a materials race as much as a satellite race. Gallium, indium and germanium could gain strategic value as communications, computing and semiconductor manufacturing move increasingly into orbit.

AXT to Shift Focus Amid Rising Germanium Prices: Challenges and Future Outlook

AXT

AXT, a leading US compound semiconductor supplier, is adjusting its strategy in response to soaring germanium (Ge) prices, which have significantly impacted its margins. The company, primarily known for its production of Ge substrates, announced that it would be pulling back from the germanium substrate market in the fourth quarter due to unsustainable production costs and lower margins. This decision comes after a sharp rise in Ge prices during the third quarter, driven by supply concerns stemming from China's government-imposed export restrictions.

Rising Ge Prices and Impact on AXT’s Business

The price of germanium, a critical material in semiconductor manufacturing, surged in the third quarter, tightening profit margins for AXT. As the world’s primary supplier of germanium, China’s export restrictions have created significant supply chain disruptions. As a result, AXT faced increased production costs that it was unable to pass on to customers, leading the company to pull back from low-margin Ge substrate business.

In the third quarter, AXT’s revenue from germanium substrates dropped to $1.6 million from $2.9 million in the second quarter, though this was still an improvement compared to $1.2 million from the same period last year. The decline in revenue was attributed to the inability to absorb rising material costs and the overall tightening of profit margins. Despite these challenges, AXT remains optimistic about re-entering the Ge substrate market as demand from low-orbit satellite services, such as Elon Musk's Starlink and China’s satellite launches, continues to grow.

AXT’s Shift to Indium Phosphide and Future Prospects

While germanium substrate business faces short-term setbacks, AXT is focusing on its indium phosphide (InP) product line, which has been seeing increased demand, particularly from data centers and artificial intelligence (AI) applications. InP revenue reached $6.8 million in the third quarter, driven by continued demand in AI and passive optical networks. AXT has also launched a new InP product targeting silicon photonics and electro-absorption modulated lasers (EMLs), receiving positive response and a design win from a major customer.

The company remains confident about the future of InP and its potential for growth, especially as AI and data centers continue to expand. Additionally, AXT anticipates a recovery in demand for light-emitting diodes (LEDs) and EMLs, supported by stimulus measures in China’s economy, which could bolster demand from the automotive industry. However, the company has experienced a dip in revenue from gallium arsenide (GaAs) substrates, which was $6.6 million in Q3, down from $9.1 million in Q2, largely due to lower demand and the ongoing economic slowdown in China.

Demand for Gallium and HPT Market Growth

AXT’s joint venture, which supplies gallium raw materials, saw increased demand in the third quarter, but the company’s sales of gallium arsenide substrates have slowed. This trend is in line with broader market conditions, including reduced demand in telecoms after a sharp decline last year. However, the company is still optimistic about future growth in the high-power telecom (HPT) market, driven by the 5G telecom expansion.

AXT continues to see interest from customers in China, particularly those looking for diversified gallium suppliers due to concerns over Chinese export restrictions on gallium. Despite challenges, AXT’s raw material supply chain remains stable, and the company expects growth in its core markets, particularly with 5G technology and emerging industrial applications.

Conclusion

AXT’s strategic decision to step back from the germanium substrate market reflects the company's commitment to maintaining profitability despite volatile raw material costs. While facing challenges in Ge and GaAs markets, AXT is diversifying its portfolio and focusing on high-demand products like InP. As the demand for AI, data centers, and satellite technologies grows, AXT remains poised to capitalize on emerging opportunities in the semiconductor industry, with an optimistic outlook for medium- to long-term growth.

Indium Phosphide Exports Become China’s New Chokepoint in AI Data Centre Supply Chain

AI data centre

Indium phosphide exports have become a strategic pressure point in the global AI data centre supply chain as China’s licensing controls delay shipments of a material essential for high-speed optical chips. The restrictions are exposing a new vulnerability in AI infrastructure: the physical materials behind silicon photonics and optical interconnects.

The issue has moved quickly from a specialist semiconductor concern to a high-level trade and industrial policy problem. Coherent, a key optical components supplier backed by Nvidia, warned in early May that indium phosphide shortages were already affecting the market. Its chief executive then joined a US business delegation to China as companies sought relief from export licence delays.

Indium phosphide exports matter because AI data centres are moving beyond copper-based interconnects. As AI workloads grow, hyperscalers need faster, lower-latency and more energy-efficient data transmission between processors, accelerators, switches and optical modules. Indium phosphide is one of the core materials enabling that shift.

The material is used in high-speed optical chips, lasers, detectors and photonic components. These devices support the optical links that move huge volumes of data across AI clusters. Without reliable indium phosphide substrates and wafers, the expansion of advanced AI data centre networks could slow.

China’s control over indium phosphide exports shows that critical materials policy is becoming more granular. Beijing no longer needs to restrict only rare earths or finished technology products. It can also influence upstream compounds, substrates and wafers that determine whether advanced semiconductor supply chains can scale.

Export Controls Expose a Hidden Bottleneck in Silicon Photonics

Silicon photonics has become a critical technology for AI infrastructure because it allows data to move through light rather than electrical signals. This reduces energy use per bit and supports the bandwidth required by large AI systems.

But silicon photonics is not only a silicon story. The most advanced optical systems often require compound semiconductor materials such as indium phosphide, gallium arsenide, gallium nitride and germanium-based compounds. Indium phosphide is especially important for lasers and high-speed optical devices.

This creates a difficult supply chain problem. AI companies, hyperscalers and chipmakers are racing to scale optical modules, but one of the key substrate materials remains highly concentrated. China is the world’s largest indium producer, accounting for about 70% of global output in 2024.

That concentration became more serious after China introduced export restrictions on indium phosphide in February 2025. Since then, licence delays have created backlogs for companies that manufacture or source InP substrates from China.

AXT, one of the world’s largest indium phosphide substrate producers and a major supplier to Coherent, said export permits were its most significant challenge. The company manufactures most of its InP substrates in China and only received its first permits last June. It still faces a large order backlog.

The effect has spread beyond individual suppliers. Coherent, Lumentum, VPEC and LandMark Optoelectronics all sit inside the optical components ecosystem that depends on reliable substrate supply. When permit delays hit upstream InP material, the impact moves through wafers, chips, optical modules and AI data centre equipment.

Prices show the severity of the shortage. Since China introduced export restrictions, the average price of a 6-inch indium phosphide wafer has surged by 250% to about $5,000. That price increase reflects both physical scarcity and the strategic premium attached to non-disrupted supply.

The supply squeeze also comes at a time of aggressive photonics investment. Nvidia announced $2bn investments each in Coherent and Lumentum in March. Marvell Technology also moved into photonics through its acquisition of Celestial AI, reflecting stronger demand for optical technology in AI computing.

These investments show where the industry is heading. AI infrastructure needs optical interconnects to manage power, latency and bandwidth. But China’s indium phosphide controls mean that materials availability could become a gating factor for deployment.

Companies are trying to respond. Coherent plans to double its InP wafer capacity at its Texas plant this year and more than double it again by the end of 2027. US photonics firms are also seeking supply from non-Chinese producers such as Sumitomo Electric Industries.

However, capacity additions are slow. New substrate plants can take two to three years to bring online. Qualification cycles are also long because optical chipmakers cannot easily switch substrate suppliers without testing performance, reliability and consistency.

This makes the shortage difficult to solve quickly. Even if new capacity is announced, it may not arrive fast enough to meet near-term AI data centre demand. Meanwhile, many non-China producers already consume part of their own output internally, reducing the amount available to the broader market.

China’s Materials Chokepoint Strategy Strengthens Domestic Producers

China’s indium phosphide export controls are creating both pressure and opportunity. They restrict global supply, but they also support domestic Chinese substrate producers that are expanding capacity.

Yunnan Germanium, Guangdong Xiandao and Zhuhai Dingtai Xinyuan are among China’s leading domestic InP substrate players. Their role is becoming more important as Beijing uses materials controls to strengthen strategic leverage across semiconductor and AI supply chains.

Yunnan Germanium has already moved to expand. The company announced a 189mn yuan investment in April to raise production capacity to 450,000 single InP wafers annually. Its shipments of InP wafers rose by 74% in 2025, showing fast domestic market growth.

Guangdong Xiandao is also expanding through its subsidiary Guangdong Xianrui. The project is expected to produce 40 t/yr of indium phosphide crystals, which are used as raw material for substrates.

These investments fit a broader pattern. China is not only defending control over upstream critical materials. It is also building downstream processing capacity in higher-value compound semiconductor materials.

However, Chinese producers may not immediately solve the global shortage. Some are still seeking export approvals, and any overseas shipments may be limited. Domestic demand remains a priority, especially as China builds its own AI, optical communications and semiconductor ecosystem.

AXT

Supplier qualification creates another barrier. Companies such as Coherent and Lumentum are unlikely to switch easily from established suppliers. Coherent relies heavily on AXT, while Lumentum sources mainly from Sumitomo and JX Advanced Metals. New suppliers must pass demanding qualification cycles before they can enter critical optical chip supply chains.

This gives China’s export controls a long-lasting effect. Even if alternative suppliers exist, the market cannot instantly redirect demand. The bottleneck is not only production volume. It is qualified, high-quality, customer-approved substrate supply.

The strategic lesson is clear. AI supply chains are not only exposed to advanced chips, GPUs and packaging capacity. They also depend on a deep materials stack that includes indium, phosphorous chemistry, InP crystals, substrates, wafers, lasers, detectors and optical modules.

This is why indium phosphide exports have become so important. AI data centre buildouts need more optical links as clusters grow larger. Copper interconnects face limits in speed, distance and energy consumption. Photonics offers a solution, but only if the materials chain can scale.

For the US and its allies, the response will likely require more than emergency licence negotiations. It will require investment in indium recovery, InP crystal growth, substrate manufacturing, wafer capacity and long-term offtake agreements. It may also require strategic stockpiles for high-purity indium and compound semiconductor substrates.

The issue also strengthens the case for recycling and secondary recovery. Indium is often produced as a by-product, making primary supply difficult to expand quickly. Recovering indium from industrial scrap, displays, semiconductors and related waste streams could become more important if export controls persist.

For AI data centre developers, the risk is timing. Demand for optical modules is accelerating now, while new ex-China capacity may not fully arrive until 2027 or later. That mismatch could raise costs, delay deployments and intensify competition for qualified photonics suppliers.

The market may therefore see a split. Companies with secured InP supply will be better positioned to support hyperscaler demand. Companies exposed to licence delays, qualification bottlenecks or spot-market wafers may face higher costs and delivery risk.

The Metalnomist Commentary

China’s control over indium phosphide exports shows that the AI race is becoming a materials race. The next bottleneck may not be only GPUs or power supply, but the compound semiconductor substrates needed to move data fast enough inside AI clusters.

Tower Semiconductor Expands SiPho and SiGe Capacity to Meet AI Data Center Demand

Tower Semiconductor

Tower Semiconductor accelerates silicon photonics (SiPho) and silicon germanium (SiGe) capacity expansion following record first-quarter revenue from these advanced semiconductor technologies. The Israel-based foundry invests $350 million to repurpose fabrication facilities across Israel, Texas, and Japan to meet surging demand. Tower Semiconductor SiPho and SiGe production ramp directly supports AI data center infrastructure expansion and next-generation optical communications systems requiring specialized semiconductor materials.

Fabrication Facility Utilization Rises Across Global Manufacturing Network

Tower Semiconductor operates multiple fabrication facilities at varying utilization rates to optimize SiPho and SiGe production capacity across its global network. Fab 2 currently runs at 55% utilization while building SiGe capacity, with available space awaiting customer qualification processes. Meanwhile, Fab 3 operates at 80% capacity, Fab 5 reaches 65% utilization driven by high-voltage power management demand, and Fab 7 exceeds its 85% model at full capacity.

The company's Fab 9 facility operates at 70% utilization as SiPho and SiGe expansion continues across the production line. Tower relocated 300mm wafer production for mobile handsets to its shared facility in Agrate, Italy with STMicroelectronics. As a result, this strategic move frees additional capacity at Fab 7 in Japan for new SiGe and SiPho 300mm products targeting data center applications.

AI Infrastructure Drives Silicon Photonics Technology Adoption

Silicon photonics technology increasingly displaces conventional indium phosphide (InP) based electro-absorption modulated lasers in high-speed data communications applications. SiPho solutions now serve 800 gigabit per second speeds and are ramping to 1.6 terabits per second for AI data center requirements. However, some optical component manufacturers develop hybrid SiPho technologies integrating InP materials for enhanced performance capabilities.

Tower Semiconductor collaborates with Chinese data center optics manufacturer Innolight Technology and US-based OpenLight Photonics on advanced SiPho development projects. OpenLight processes InP materials directly on SiPho wafers using Tower's PH18DA platform, reducing costs and time for laser integration. Therefore, these partnerships accelerate Tower Semiconductor SiPho technology advancement while expanding customer applications across global markets.

Radio frequency infrastructure business growth stems from data center and AI expansions requiring SiPho and SiGe technologies for optical fiber communications. SiGe demand increases strongly through continued adoption for transimpedance amplifiers and drivers in optical modules. Consequently, Tower expects significant long-term SiGe adoption in satellite terrestrial receivers and low-noise amplifiers for advanced handset applications.

The Metalnomist Commentary

Tower Semiconductor's strategic capacity expansion for SiPho and SiGe technologies positions the company at the intersection of AI infrastructure growth and advanced semiconductor materials demand. The shift toward silicon-based photonics solutions reduces reliance on traditional III-V materials like indium phosphide while creating new opportunities for specialized semiconductor manufacturing capabilities that support next-generation data center and telecommunications infrastructure requirements.

US Critical Materials Funding Targets Recycling, Refining and DLE Technologies

DOE (the Department of Energy)

US critical materials funding is moving deeper into domestic production and refining after the Department of Energy announced up to $69 million for new technologies and processes. The notice of funding opportunity, announced on 7 April, targets critical materials including rare earth elements.

The funding is designed to help move technologies from bench-scale innovation toward commercial deployment. That focus is important because the US critical materials funding gap is often not resource identification, but the ability to scale processing, refining and recovery technologies into reliable industrial supply.

The programme covers three main areas: recycling from manufacturing and end-of-life scrap, refining of gallium, germanium and silicon, and direct lithium extraction alongside critical material recovery from volcanic-hosted geothermal systems.

Recycling and Refining Move Higher on the US Supply Chain Agenda

The first funding area targets recycling from manufacturing scrap and end-of-life scrap. This could support recovery routes for valuable metals already present in electronics, magnets, batteries, industrial components and advanced manufacturing waste streams.

The second area focuses on refining gallium, germanium and silicon. These materials are strategically important for semiconductors, optics, solar technologies, defense systems, data infrastructure and advanced electronics.

US critical materials funding for these metals reflects growing concern over concentrated supply chains. China dominates several critical material processing routes, making domestic refining capability a central issue for industrial resilience and national security.

DLE and Geothermal Systems Add New Resource Pathways

The third topic area covers direct lithium extraction and exploration of critical materials and rare earth elements from volcanic-hosted geothermal systems. This could open new pathways for lithium and mineral recovery beyond conventional mining.

Direct lithium extraction remains strategically important because it may improve recovery efficiency, reduce land use and shorten production timelines compared with traditional brine evaporation. However, commercial scalability remains the decisive test.

The DOE said the $69 million opportunity is part of several programmes totalling nearly $1 billion. These initiatives aim to advance mining, processing and manufacturing technologies across the critical materials supply chain.

The Metalnomist Commentary

The US critical materials funding programme shows that Washington is now targeting the weakest links between laboratory success and industrial supply. The key test will be whether these grants create commercial refining and recovery capacity, not only promising pilot projects.

India to Invest $393 Million in New Semiconductor Facility

The Indian government has approved a significant investment of Rs33 billion ($393 million) for a new semiconductor manufacturing facility in Sanand, Gujarat. This funding is part of an incentive scheme introduced in December 2021.

The new facility, operated by Kaynes Semicon, is expected to produce 6 million chips per day. It will cater to various sectors, including industrial applications, automotive, electric vehicles, consumer electronics, telecommunications, and mobile phones. The facility will also increase India's demand for key semiconductor materials such as silicon, antimony, and germanium.

Previously, the Indian government had approved three other semiconductor manufacturing units: two by Tata Electronics in Dholera, Gujarat, and Morigaon, Assam, and one by CG Power in Sanand. Additionally, the Union Cabinet approved the country's first semiconductor assembly unit in Sanand in June 2023.

This new facility will be funded under a Rs76 billion scheme aimed at developing semiconductor and display manufacturing in areas of "strategic importance and economic self-reliance," as approved by the Union Cabinet on December 15, 2021.

The four manufacturing units, with a total investment of nearly Rs1.5 trillion, will collectively have a production capacity of about 70 million chips per day, bolstering India's chip-making ecosystem.

Vital Materials InP Wafer Project Targets China’s Compound Semiconductor Growth

Vital Materials

Vital Materials InP wafer project plans will add new indium phosphide and gallium arsenide materials capacity in Hubei province as China expands its compound semiconductor supply chain. The project will be developed in Jingzhou by subsidiary Hubei Vital New Material.

Vital Materials InP wafer project capacity is planned at 90 t/yr of indium phosphide and 160 t/yr of gallium arsenide wafer materials. The company started an environmental impact assessment on 28 May, although a commissioning schedule has not been disclosed.

Vital Materials InP wafer project development reflects rising demand for high-speed optical components used in artificial intelligence infrastructure, data centres and communications networks. InP is becoming increasingly strategic as optical bandwidth requirements rise.

The investment also deepens China’s downstream use of indium, where the country already dominates global production of both primary and recycled material.

AI and Optical Networks Drive InP Capacity Expansion

Indium phosphide wafers are critical substrates for high-speed optical and photonic devices. They are widely used in lasers, detectors and optical modules that move data between servers and networking systems.

AI data centres are becoming one of the strongest growth drivers for these applications. As computing clusters expand, optical connectivity is increasingly needed to move information at higher speeds and lower latency.

This is supporting a wider global race to expand InP capacity. Chinese producer Yunnan Germanium is increasing production of high-quality InP single-crystal wafers, while overseas manufacturers are also investing in new capacity.

Gallium arsenide remains another important compound semiconductor material. It is widely used in radio-frequency, wireless, sensing and optoelectronic applications where conventional silicon has performance limitations.

Vital’s planned combination of InP and GaAs therefore gives it exposure to multiple growth markets, including AI infrastructure, optical communications, telecommunications and advanced electronics.

The project also fits China’s broader strategy of building more domestic semiconductor materials capacity and reducing dependence on foreign processing technologies.

Export Controls Raise Strategic Value of Indium Processing

China added InP to its dual-use export control system in February 2025, increasing the material’s strategic importance.

Export controls can affect international supply availability even when domestic production is sufficient. This makes local wafer and substrate capacity more valuable to Chinese downstream manufacturers.

China produced an estimated 1,800-1,900t of primary and recycled indium in 2025, giving it a strong upstream resource position. Expanding InP wafer capacity allows more of that indium to move into higher-value semiconductor applications.

That downstream shift matters economically. Selling processed wafers and engineered materials captures more value than exporting refined minor metals alone.

For the global market, the project also reinforces concentration risk. China already holds a dominant position in several minor metals and is now expanding further into downstream semiconductor materials.

The key issue will be whether non-China InP capacity can grow quickly enough to keep pace with AI-driven demand and mitigate supply risks linked to export controls.

The Metalnomist Commentary

Vital’s project shows that the indium supply chain is moving rapidly from metal production toward strategic wafer materials. AI demand is making InP capacity as important as upstream indium availability itself.