Diamond semiconductors are quickly emerging as one of the technology market’s most closely watched themes, driven by the rapid expansion of artificial intelligence, rising demand for more efficient chip cooling and growing investment in next-generation semiconductor infrastructure. Nagham Hassan, Market Analyst at eToro, examines what is driving the momentum and where investors should separate technological progress from market hype.

The technology has its roots in necessity. Following the 2011 Fukushima disaster, which exposed the limitations of conventional silicon sensors under extreme heat and radiation, Japan spent more than a decade developing semiconductor technology based on one of the most resilient materials available: diamond. That research is now moving closer to commercial reality.

The global market for lab-grown single-crystal diamonds, the material required for semiconductor applications and advanced heat management, was valued at approximately $2.1 billion in 2025 and is projected to more than double to $4.3 billion by 2034, according to Fortune Business Insights. Electronics, primarily cooling components and chip packaging, already account for roughly 60% of demand.

One of the biggest potential growth areas is AI infrastructure. Huafu Securities projects the market for diamond cooling solutions for AI chips could reach between $7.1 billion and $13.3 billion by 2030. Diamond conducts heat several times more effectively than copper, making it increasingly attractive as AI processors become more powerful and generate significantly more heat.

“Diamond semiconductors sit at the intersection of two themes investors are already watching closely: the global semiconductor race and the enormous infrastructure requirements created by AI,” said Nagham Hassan, Market Analyst at eToro. “The technology offers a compelling solution to one of the industry’s most pressing challenges, but the investment story is developing much faster than the revenues behind it.”

Global investment accelerates

Governments and manufacturers are racing to establish positions across the emerging supply chain.

Japan opened the world’s first diamond semiconductor mass-production facility in Fukushima in May 2026. In June, UK-based Element Six, part of De Beers Group, and Japan’s Orbray announced progress in developing a repeatable process for producing three-inch diamond wafers.

In the United States, Coherent has produced lab-grown diamonds since 2010 and supplies diamond thermal-management components. California-based Akash Systems delivered its first diamond-cooled Nvidia servers in February 2026, while plans have also been announced for a De Beers-led diamond facility in Georgia.

Europe is building capacity as well. Diamond Foundry operates a commercial facility in Spain, while Diamfab has opened an industrial site for semiconductor-grade diamond in Grenoble, France.

Despite the rapid progress, there remains an important distinction between what is commercially available today and what is still being developed.

Lab-grown diamond components used for thermal management are already being produced, with thermal spreaders reaching customers in limited volumes. Fully diamond-based semiconductor chips, however, are not yet ready for mass-market adoption.

Manufacturing processes continue to be refined, while diamond wafers remain significantly more expensive than conventional silicon. The Fukushima facility is targeting full-scale output by 2028, major commercial orders for cooling applications are expected to accelerate from 2027, and Diamfab is targeting mass-market power electronics applications by 2030.

Markets price in the future

Investor enthusiasm has already produced significant volatility across companies exposed to the theme.

Momentum accelerated in late 2025 after China introduced restrictions on exports of super-hard materials. Sentiment strengthened further in early 2026 amid reports of new US-Japan manufacturing initiatives and developments around the use of diamond cooling in next-generation AI infrastructure.

Since then, individual stocks have reacted sharply to announcements around manufacturing projects, supply agreements and potential contracts, highlighting how sensitive valuations remain to expectations about the future of the industry.

An index of listed Chinese diamond companies had more than doubled by July 2026. Yet for many businesses in the sector, thermal-management applications still contribute little to current revenue.

“This is where investors need to separate technological progress from market expectations,” Hassan added. “Diamond cooling has a credible commercial use case, particularly as the AI industry looks for ways to manage increasingly power-intensive processors. But many valuations are already reflecting contracts and revenue streams that have yet to materialise.”

“The next phase will therefore be less about announcements and more about execution. Confirmed commercial orders, manufacturing scale, lower production costs and evidence that diamond-based solutions can compete economically with existing technologies will be the indicators to watch.”

For investors, the long-term opportunity may be substantial, but so is the gap between technological potential and present-day earnings. As the industry moves from laboratory breakthroughs towards commercial scale, companies able to turn technical advantages into repeatable production and confirmed customer demand are likely to determine whether diamond semiconductors become the next major semiconductor market or remain a high-potential niche.