Surging AI Demand Stretches TSMC’s Manufacturing Capabilities to the Brink

The global race for artificial intelligence supremacy is placing unprecedented strain on semiconductor supply chains, with Taiwan Semiconductor Manufacturing Company (TSMC) at the epicenter. As demand for cutting-edge AI processors skyrockets, the world's leading foundry is grappling with capacity constraints, particularly in a critical advanced packaging segment. This supply-demand imbalance is fueling robust order books and prompting market analysts to revise their outlooks upward.

Market experts are responding to the tight supply situation with increased price targets. Research firm Bernstein has significantly raised its target for TSMC's US-listed shares from $290 to $330, reaffirming its "Outperform" rating. Central to this optimistic assessment is the company's pivotal role in supplying "Chip-on-Wafer-on-Substrate" (CoWoS) packaging, a sophisticated method for interconnecting chips that is essential for contemporary AI hardware. Bernstein forecasts that TSMC will expand its monthly CoWoS output capacity to 125,000 wafers by the end of 2026 in an effort to meet soaring market requirements.

Investor sentiment remains decidedly positive, reflected in the share price trading near €261.50, close to its recent 52-week high.

Nvidia's Dominant Position

A primary factor behind the current shortage is TSMC's most significant client: Nvidia. Industry reports indicate the US-based graphics chip designer has already secured over half of TSMC’s total CoWoS capacity for 2026 and 2027. These advanced bookings align directly with Nvidia's substantial investments in its forthcoming Blackwell and Rubin GPU architectures.

Should investors sell immediately? Or is it worth buying TSMC?

This dynamic underscores TSMC's formidable market position:
* Its entire CoWoS product line is fully booked.
* Major clients, besides Nvidia, include Google, Amazon, and MediaTek.
* Existing capacity is sufficient to support announced projects but offers little flexibility for unexpected new demand.

Exploring External Partnerships

With its internal facilities operating at their limits, TSMC is reportedly exploring collaborations with external partners, according to industry insiders. Third-party chip packaging providers, such as ASE Technology, could begin benefiting from overflow orders as early as 2026 to help fulfill urgent requests from key customers. The potential repurposing of TSMC's fabrication facilities in Arizona for advanced packaging work is also under consideration.

Robust Long-Term Fundamentals

Despite facing massive capital expenditures, estimated at $47 billion for the coming year, the company's financial outlook remains strong. Analysts project revenue growth of 23 percent for 2026. The long-term business model is supported by two powerful trends: the massive build-out of AI data centers through 2029 and the planned transition to an even more advanced 2-nanometer (N2) manufacturing process. In this context, Bernstein characterizes TSMC as a foundational holding for investors seeking exposure to the infrastructure underpinning artificial intelligence.