Increased demand for artificial intelligence hardware is straining the semiconductor supply chain, with TSMC's advanced chip manufacturing capacity a critical bottleneck for key AI players.
Illustration by IMF Alpha editorial · Reviewed by IMF Alpharoom AI
The global semiconductor industry is experiencing significant strain due to escalating demand from the artificial intelligence sector. Foundries, particularly Taiwan Semiconductor Manufacturing Company (TSMC), are operating at or near full capacity for their most advanced process technologies, notably 3nm and 5nm nodes.
TSMC, a primary manufacturer for leading AI chip designers, reported a 16.5% year-over-year revenue increase in Q1 2024, reaching $18.87 billion. Much of this growth is attributed to high-performance computing (HPC) and AI applications. The company has indicated that demand for its cutting-edge nodes continues to outstrip supply, projecting capital expenditures for 2024 to be between $28 billion and $32 billion, largely focused on expanding these advanced capabilities.
This capacity crunch directly affects key AI hardware developers. Companies like Advanced Micro Devices (AMD) and Broadcom (AVGO), which rely on TSMC for their high-end AI accelerators and custom chips, face potential delays in product delivery and limitations on sales volume. Nvidia, while enjoying robust sales of its H100 and upcoming B200 GPUs, also navigates these supply dynamics, aiming to secure sufficient capacity to meet its substantial order backlog.
Broadly, the elevated demand for AI chips is driven by large language model development, enterprise AI adoption, and increased cloud infrastructure spending. Goldman Sachs estimates that the AI chip market could reach $250 billion by 2027, up from approximately $40 billion in 2022, underscoring the long-term pressure on manufacturing capacity.
Another critical component of the supply chain is ASML Holding (ASML), the sole supplier of extreme ultraviolet (EUV) lithography equipment essential for manufacturing the most advanced chips. ASML's 2023 net sales reached €27.6 billion, with a significant portion of its order backlog tied to foundry expansion plans, including TSMC's. Any constraints on ASML's production or delivery schedules can ripple through the entire advanced semiconductor ecosystem, further impacting AI chip availability.
Industry analysts project that while some capacity improvements may emerge in late 2025 or early 2026, the tight supply environment for leading-edge semiconductors is likely to persist for the foreseeable future. This situation could lead to sustained higher pricing for advanced AI components and strategic investments by tech giants to secure dedicated foundry capacity.
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