Ignoring economic effects, there is a hard physical limit, which changes us from a “classical” or “semi-classical” physics regime, into a hard “quantum” regime. This is when a length scale of the semiconductor (width, depth, length, spacing) becomes comparable to the thermal de Broglie wavelength of a charge carrier (for an electron at room temperature, this is about 4.3nm or 43 Angstrom. Then our device physics will be significantly different than it is today. Different doesn’t mean worse, there may be some very nice new devices we can build from this (a quantum ALU anyone?) where we leverage and embrace the quantum nature of the system. There is quite a bit of work going on in quantum computing. It would be interesting to see if it can be made practical.
Note that we are at 45nm devices now, about 10x the de Broglie wavelength. 20nm devices are about 5x, so you should see a serious onset of the quantum regime happen below this. The charge carrier waves tend to interact with an exponential tail that looks something like exp(-1 x size / constant) where the size is the structure size or spacing, and the constant is a multiplicative factor times that de Broglie wavelength. If you get a bunch of “square” wires close enough together, you will get basically a Kronig-Penny model, which is a homework problem for many an undergraduate physics student in their quantum mechanics class. We are getting nearer to this.

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