As demonstrated by the record-breaking quarterly performance of Taiwan Semiconductor Manufacturing Company, Limited (TSMC), there are no signs of a slowdown in demand from chip manufacturers. In fact, TSMC's manufacturing capacity is already unable to keep up with the demand.
The boom in artificial intelligence has created a continuous demand on the production lines of this global leading chip manufacturer, which could potentially hinder the industry's ability to scale up. Last year, TSMC stated that its production capacity equivalent to 12-inch wafers had exceeded 17 million units. But customers want more.
Mizuho Securities analyst Jordan Klein stated: "The competition is extremely fierce. It's a game to see who can obtain the most chips and supply."
TSMC produces the vast majority of the world's most advanced semiconductors, including graphics processors and central processing units for NVIDIA, AMD, and Broadcom, which are essential for running AI workloads. Nowadays, an increasing number of technology companies—Apple, Google, Amazon, Microsoft, Meta, and OpenAI—also rely on TSMC to manufacture their own AI accelerators.
TSMC North America CEO Sajiv Dalal told CNBC that he receives at least 10 calls per day regarding wafer production capacity. TSMC announced record profits for the sixth consecutive quarter on Thursday and expects revenue in the fourth quarter to grow by 58% compared to the same period last year, driven by strong demand for its advanced manufacturing processes.
Klein indicates that if the demand for computing power continues to grow at the current rate over the next 12 to 18 months, TSMC's production capacity constraints may threaten some large-scale infrastructure investments in the industry, as well as AI the company's "aggressive revenue growth targets." The capital expenditures of ultra-large cloud service providers in the United States are expected to exceed $700 billion this year, and analysts predict that this figure will further rise by 2027.
AI The company's ambitions are also threatened by a global shortage of storage chips. The logic chips manufactured by TSMC are more complex and have higher production costs. This means that leaders in the industry such as NVIDIA and AMD, as well as GPU and CPU, will finalize long-term contracts and customized agreements with TSMC years in advance. Both NVIDIA CEO Jensen Huang and AMD CEO Su Zifeng have visited Taiwan multiple times this year.
The chip startup D- Matrix CEO Sid Sheth has had a relationship with TSMC for over 20 years, and its company relies on TSMC to manufacture processors. Sheth indicates that for TSMC's customers, many paths ultimately lead to TSMC's senior vice president Kevin Zhang; he is the key figure who decides which chip manufacturers can obtain valuable production line resources.
Sheth said in the interview that Kevin Zhang "is probably the most popular person on this planet right now." Sheth also mentioned that D-Matrix, the vice president of manufacturing operations, Jerry Qubain, has been visiting TSMC since 1992, traveling to Taiwan three to four times a year.
Sheth said, "That's actually even earlier than the establishment of NVIDIA. This is a great example of why we would hire such a person—because he has connections at TSMC." Qubain joined D-Matrix in 2024. TSMC declined to comment on this report.
Betting on startups
TSMC will have 534 customers by 2025. Although it does not name or rank its customers, its top ten customers contribute 78% of its net revenue, with the two largest customers contributing 19% and 17% respectively.
This means that startups have to compete for production capacity with customers who place much larger orders. Sheth indicates that TSMC is “selective,” but they also have the incentive to support promising new entrants.
Sheth said, "When NVIDIA and Broadcom were still young, we supported both companies very strongly, and now they have become TSMC's largest customers today. We hope to see this happen again."
TSMC is stepping up efforts to bring more production capacity online, building new wafer factories in Taiwan, Japan, and Arizona – this is also its first time producing advanced chips in the United States. In July of this year, TSMC announced that it would invest an additional $100 billion and build “several more” wafer factories on top of the original six planned in Arizona, bringing its total committed investment to $265 billion. It is reported that TSMC is also considering a site for a brand-new wafer factory in Texas.
However, all these projects will take several years to come online. In the meantime, analysts say TSMC is adding equipment to its existing factories, such as ASML's extreme ultraviolet lithography machines, to increase production capacity. ASML significantly exceeded profit expectations in its financial report on Wednesday and stated that customers are interested in placing orders until 2030.
TSMC is not the only option. Capacity constraints have also created opportunities for two other leading advanced chip manufacturers—Samsung and Intel—to acquire customers.
TechInsights Analyst Dan Hutcheson told CNBC: “People want a second source of supply so that they can put pressure on TSMC and make it more restrained in its pricing.”
This second source could be Intel – the only advanced logic chip manufacturer headquartered in the United States. Although its wafer foundry business has been plagued by delays and setbacks for many years, Hutcheson indicates that all major chip manufacturers are now testing Intel’s production capacity.
Industry associations SEMI predict that by 2029, there will be 102 new wafer factories in operation globally, with 15 of them in the United States and 78 in Asia. China will be the main driver of growth, with production capacity expected to nearly triple by 2030. To catch up, investment in wafer factories in the United States is expected to more than double by 2029.
As Arizona continues to expand its layout and the competition for wafer production capacity becomes "extremely fierce," Klein states that TSMC is "one of the companies with the best strategic positions on this planet."
