China's lab-grown diamond makers target AI, chip sectors for next wave of growth

By Amy Lv and Casey Hall

ZHENGZHOU, China Oct 27 (Reuters) - Around 70% of the 2 million carats of lab-grown diamonds produced annually at Feng Canjun's factory currently go into jewellery.

But the entrepreneur is betting that the future of China's synthetic diamond industry lies in supplying advanced materials for semiconductors, AI servers and other high-tech applications.

"I am looking to raise the share of my products used in functional materials to more than 50% by 2030 while reducing the share going to the jewellery sector to a maximum of 30%," Feng said.

China's lab-grown diamond producers, which account for around half of the world's supply, are looking beyond gemstones as competition intensifies and prices come under pressure.

The shift could give the industry greater strategic significance in the US-China technology rivalry. If synthetic diamonds become more widely used in semiconductors and thermal management in AI infrastructure, China's production dominance could emerge as another supply-chain vulnerability for the US.

"The transition is now the defining structural story in the diamond industry and one with direct implications for global technology supply chains," said Manan Goenka, engagement manager at Ken Research, a consultancy.

Companies and analysts say demand from sectors including chips, thermal management and quantum technology could become the industry's next major growth engine, with synthetic diamonds prized for properties that can improve the performance of advanced electronics and computing systems.

The move comes as AI drives a surge in demand for data centre capacity. The International Energy Agency said in a 2025 report that data centre electricity consumption is projected to more than double by 2030 to about 945 terawatt-hours, roughly equivalent to Japan's annual power consumption, with AI being the main driver.

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THE AI OPPORTUNITY

Thermal management is viewed by analysts as a nearer-term opportunity, while the use of diamonds as a semiconductor material is further away from widespread commercial adoption. Chip applications also require much higher purity and tighter manufacturing standards than diamonds used in cutting and drilling tools.

But interest from some of the world's biggest technology companies points to the potential for chip applications to become a new source of demand as AI computing generates increasing amounts of heat.

Chinese media have reported that Huawei and TSMC 2330.TW are exploring synthetic diamonds for chip cooling, while Lenovo 0992.HK has launched a consumer laptop in China that it says uses a diamond-copper cooling material.

In June, Intel INTC.O CEO Lip-Bu Tan said he personally invested in Diamond Foundry, a lab-grown diamond maker developing chip-grade diamond wafers.

Huawei, Lenovo and Intel did not respond to requests for comment. TSMC declined to comment.

Some Chinese producers are beginning to invest in anticipation of demand. Henan Liliang Diamond 301071.SZ plans to redirect 1 billion yuan ($149.18 million) in funds originally raised to expand gem-grade diamond production to a new functional-diamond project, according to a June filing.

In April, diamond-copper cooling modules developed by Chinese researchers improved heat transfer from chip modules by 80% and raised chip performance by 10%, according to the Ningbo Institute of Materials Technology & Engineering.

Wider adoption could reshape the market for thermal-management materials that are used to stop chips from overheating. Germany's Henkel HNKG.DE, US chemical firm Dow DOW.N and Japan's Shin-Etsu Chemical 4063.T sell products used to dissipate heat from chips. Diamond heat spreaders could compete with some existing materials if adopted widely in AI chips and data centres.

Henkel, Dow and Shin-Etsu did not respond to requests for comment.

Related diamond-enabled products are also being explored outside China. In June, De Beers' synthetic-diamond and advanced-materials business Element Six and Japan's Orbray said they had produced 3-inch single-crystal diamond wafers and were preparing 2-inch wafers for production in Oregon.

The Spanish government is investing €753 million ($868 million) in a Diamond Foundry plant in Trujillo that will make synthetic diamond wafers. If completed, it would be Europe's first large-scale producer of diamond substrates, a material for semiconductor manufacturing.

In early October, Frore Systems, a US thermal-management company, unveiled LiquidJet Diamond, a multi-stage coldplate with an integrated diamond spreader.

"The scope and potential in the technology and industrial sectors could be significantly above the retail diamond jewellery business, which itself is approximately $100 billion a year," said independent diamond consultant Robert Bouquet.

DIAMOND MACHINE

Feng's Jiaruifu factory is one of hundreds of lab-grown producers clustered in the central province of Henan, which accounts for 80% of China's synthetic diamond output.

Lab-grown diamonds are made in machines that replicate the high-temperature, high-pressure conditions under which natural diamonds form. They are physically identical to mined diamonds.

One machine in Feng's factory can produce 120 carats of rough diamonds in six days, shortening a process that takes billions of years naturally.

Feng has 550 such machines, each costing about 3 million yuan and weighing more than 100 tons. They have enabled him to increase annual output tenfold since launching the business in 2019, to 2 million carats in 2025, equivalent to about 9% of De Beers' production last year.

Beijing has already moved to incorporate the technology into its export control regime, placing related machinery and key components under restrictions in 2024. It added more synthetic diamond products to its list in 2025, though implementation was postponed for a year under a US-China deal reached last October.

"The broader implication is that synthetic diamonds could increasingly become part of the strategic trade-policy conversation surrounding semiconductors, rare earths and advanced manufacturing," said Goenka.

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China's rapid expansion of lab-grown diamond production has helped drive down prices, increasing pressure on producers to find higher-value applications.

Gross profit margins are 30% to 40% for gem-grade diamonds compared with about 50% for industrial diamonds, according to Feng. Rather than increasing output further, he plans to shift more production towards higher-value industrial uses.

While the commercial potential of synthetic diamonds in advanced industrial applications remains uncertain and risks contributing to another bout of Chinese industrial overcapacity, producers remain optimistic.

"It will be a billion- or even trillion-yuan market, and we are strategically expanding into next-generation applications to replace traditional ones," Feng said.

($1 = 6.6997 Chinese yuan)