The semiconductor industry is buzzing with TSMC at the center of attention, especially as the demand from fabless manufacturers in the AI race continues to surge. However, this demand is proving to be quite challenging for the chipmaking giant.
Surging Demand and Market Leadership
TSMC, the renowned Taiwan chip manufacturer, has secured a massive market share over recent years as the AI craze has made it the preferred choice for companies like NVIDIA and AMD. This has translated into substantial revenue and soaring process utilization rates, with nodes such as 5nm, 4nm, and 3nm reportedly in high demand. Reports suggest that the unrelenting focus on TSMC has led the company to invest significantly in boosting capacity. However, this has also resulted in significant challenges, including labor shortages and increased capital expenditures.
There are concerns among TSMC’s suppliers about the rising costs tied to fab expansion. With numerous clients to accommodate, market conditions are unfavorable for price hikes. It’s anticipated that TSMC’s capital expenditure will surge to $50 billion in 2026, largely driven by efforts to expand into newer nodes like 2nm and ensure sufficient supply of mainstream processes such as 4nm.
The Bottleneck of Advanced Packaging
Beyond nodes, advanced packaging is emerging as one of TSMC’s biggest challenges. The rapidly increasing interest from high-performance computing (HPC) customers is compelling the company to expand its capacity aggressively. Additionally, TSMC is facing growing competition in advanced packaging from rivals like Intel, who are exploring products like EMIB, mainly due to capacity constraints pushing customers to seek alternatives.
While TSMC enjoys a booming business, its monopolistic position in the chip market presents unique challenges, as it cannot feasibly cater to every client without making tradeoffs. For customers such as NVIDIA, TSMC remains the primary source for chips, as other competitors like Intel Foundry and Samsung have yet to produce viable alternatives for external adoption, leaving TSMC under significant pressure.