Highlights

• China dominates 70% of rare earth element production, creating global supply chain vulnerabilities in semiconductor manufacturing.
• AI and semiconductors represent less than 10% of rare earth element consumption.
• Renewable energy is the primary demand driver for rare earth elements.
• Western countries are developing strategies to diversify REE supply through domestic mining, processing initiatives, and technological innovation.

Advanced semiconductors, which incorporate various rare earth elements (REEs) and critical minerals, are essential for the development of artificial intelligence (AI). Neodymium, praseodymium, terbium, and dysprosium are involved in semiconductor doping, while materials like gallium and germanium enhance chip performance.

However, despite media narratives suggesting AI is a primary driver of REE demand, according to Richard Pallardy, writing for Information Week (opens in a new tab), industry experts argue that semiconductors account for only a small fraction—likely less than 10%—of total REE consumption. Rather, it’s the renewable energy sector, particularly wind turbines and solar panels, that represents the dominant demand driver.

China’s control over 70% of global REE production and 90% of processing has led to supply chain vulnerabilities, exacerbated by its periodic export restrictions. In response, Western countries are working to diversify their supply through domestic mining and refining efforts, with the U.S. supporting initiatives like the CHIPS Act and DARPA exploration programs. However, processing remains a major bottleneck as China’s advanced refining capabilities continue to outpace those of other nations.

While deep-sea mining and recycling of REE-based components are being explored, both face technical and regulatory hurdles:  only about 1% of magnets today derive from recycling.

Does Pallardy overstate AI’s role in driving REE demand while downplaying AI’s potential contributions to supply chain optimization? How does AI-driven semiconductor demand compare to broader market trends? Additionally, while the piece acknowledges China’s dominance, it overlooks long-term shifts in REE processing capabilities, the role of industrial policy, and emerging competitors like India.   For the West to overcome China's dominance, industry policy is more than likely a must. Alternative material innovations, such as non-REE semiconductors and AI-assisted materials science, are dismissed too readily.

Can AI play an integral role in supporting REE extraction and processing while also probing for alternative materials that could reduce dependence on these critical elements?