TSMC accelerates expansion as soaring AI chip demand overwhelms its packaging capacity

16:50

By: Dakir Madiha

TSMC accelerates expansion as soaring AI chip demand overwhelms its packaging capacity

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, faces an unprecedented surge in demand for its advanced packaging technology as global tech giants race to power artificial intelligence applications. The company’s proprietary Chip-on-Wafer-on-Substrate (CoWoS) process, used to assemble high-performance AI processors, has reached full capacity, prompting a strategic expansion and a partial shift toward outsourcing to meet client expectations.

Capacity crunch drives aggressive growth

TSMC currently handles about 75,000 to 80,000 wafers per month in its CoWoS operations but aims to boost production to between 120,000 and 130,000 wafers monthly by late 2026. Analysts at Morgan Stanley recently raised their forecast for TSMC’s CoWoS capacity by over 20 percent, noting that the expansion aligns with the company's rapid front-end growth in 3-nanometer chip production.

Financially, the company continues to post impressive results. In October 2025, TSMC announced record monthly revenue of NT$367.47 billion (approximately $11.87 billion), marking a 16.9 percent year-on-year increase. For the first ten months of 2025, revenue totaled NT$3.13 trillion, representing a 33.8 percent increase compared to 2024, primarily driven by robust AI chip demand from clients such as Nvidia, Amazon, Alphabet’s Google, and MediaTek.

Partners step up amid supply strain

To manage the capacity strain, TSMC is turning to outsourcing partners to handle parts of its packaging process, especially for chips with simpler redistribution layer structures. ASE Technology Holding is emerging as a leading partner, expected to triple its monthly CoWoS capacity to up to 25,000 wafers by 2026. The company began constructing a $578.6 million advanced packaging facility in Kaohsiung in October 2025, set to begin operations in early 2028.

The collaboration is part of a broader industry effort to diversify manufacturing capabilities and reduce reliance on a single supplier. In September 2025, TSMC and ASE joined forces with 37 other companies to launch the 3DIC Advanced Manufacturing Alliance. The initiative seeks to enhance cross-industry cooperation, address global capacity bottlenecks, and standardize processes in the fast-growing advanced packaging segment.

TSMC’s rapid capacity buildup underscores the semiconductor industry’s central challenge: delivering enough high-performance chips to sustain the booming AI revolution. The company’s expansion plans highlight its determination to maintain technological leadership while adapting to the pace of market transformation.