--- title: "AI's Biggest Bottleneck Remains: Taiwan Semiconductor" type: "News" locale: "en" url: "https://longbridge.com/en/news/286012166.md" description: "Tech giants are collectively pouring $725 billion in capital expenditures this year to secure AI chips, as supply bottlenecks continue to tighten. Taiwan Semiconductor is reaping the benefits of pricing power, with its gross profit margin rising to 66% in the first quarter. The CEO expressed \"full confidence\" that full-year revenue growth will exceed 30%. NVIDIA's procurement commitments are set to surge from $16 billion to $95 billion within two years, with some customers even prepaying years in advance to lock in capacity" datetime: "2026-05-12T00:22:55.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/286012166.md) - [en](https://longbridge.com/en/news/286012166.md) - [zh-HK](https://longbridge.com/zh-HK/news/286012166.md) --- # AI's Biggest Bottleneck Remains: Taiwan Semiconductor As tech giants scramble to spend heavily to secure AI chips, global chip manufacturing capacity is under unprecedented pressure. The biggest beneficiary of this supply shortage points to one name: Taiwan Semiconductor. Microsoft, Meta, Alphabet, and Amazon have planned a combined capital expenditure of up to $725 billion this year, with the majority directed toward AI chip purchases. This flood of demand has directly boosted Taiwan Semiconductor's Capacity Utilization Rate and Gross Profit Margin. In the first quarter of this year, its Gross Profit Margin climbed to approximately 66%, up from about 59% a year earlier. C.C. Wei, CEO of Taiwan Semiconductor, stated last month that he is "fully confident" that revenue growth this year will exceed 30%. In the view of chip investors, memory chip manufacturers and companies like Intel and AMD have recently garnered more attention. However, according to an analysis by The Wall Street Journal, no chip company holds a stronger structural advantage than Taiwan Semiconductor in the new phase of AI development. Notably, despite strong fundamentals, Taiwan Semiconductor's current stock price corresponds to a forward P/E ratio of only about 21x, which is lower than the 26x average of the Philadelphia Semiconductor Index, indicating that its valuation is not expensive. ## Supply Bottlenecks Tighten, Taiwan Semiconductor Reaps Pricing Power Taiwan Semiconductor's core competitiveness lies in its irreplaceable market position. **In the field of the most advanced process nodes, Taiwan Semiconductor has virtually no true competitors—Samsung's foundry revenue lags far behind, while Intel and Japan's Rapidus are still struggling to gain a foothold. Even Elon Musk's recently announced Terafab project, despite leveraging Intel's capabilities, remains far from mass production.** This near-monopoly status grants Taiwan Semiconductor implicit pricing power amid extremely tight supply and demand. NVIDIA's procurement commitments for the latest fiscal quarter ending in January exceeded $95 billion, a significant portion of which will be paid to Taiwan Semiconductor. Just two years ago, this figure was only $16 billion. Some customers have even locked in capacity years in advance, prepaying billions of dollars to ensure they receive chips. Nevertheless, C.C. Wei has remained cautious in his public statements. He stated last month, "We will not significantly adjust pricing; we are simply ensuring that our customers can succeed in their respective markets." This stance both stabilizes customer relationships and leaves room for natural price increases associated with future process node upgrades. ## Gross Profit Margin Under Short-Term Pressure, Long-Term Logic Unchanged Wendell Huang, CFO of Taiwan Semiconductor, admitted to analysts last month that the Gross Profit Margin would narrow in the second half of this year. **The reason is that the company is entering the ramp-up phase for mass production of its latest generation process node, N2. Initial costs for new process nodes are high, but costs will decrease once production stabilizes, which is a common pattern in the chip industry.** Additionally, Taiwan Semiconductor's expansion of wafer fabs in the United States is putting pressure on profit margins, as operating costs for factories in the U.S. are higher than those in Taiwan. From a longer-term perspective, as advanced process nodes mature, the Gross Profit Margin is expected to rebound. Taiwan Semiconductor is also expanding N3 process capacity in Taiwan, Japan, and the United States. Although this generation of technology is slightly less advanced than the cutting-edge nodes, it requires lower equipment costs and can still handle a large volume of AI chip orders, balancing profitability efficiency with capacity expansion. ## High Capital Expenditure, Yet Growth Rate Still Lower Than Revenue Taiwan Semiconductor's capital expenditure this year is expected to approach the upper end of its previously forecast range of $52 billion to $56 billion. In the chip industry, overly rapid capacity expansion has historically been a risk—once demand declines, idle capacity becomes a heavy burden of fixed costs. However, Taiwan Semiconductor's current expansion pace is not out of control. C.C. Wei's statements provide a key reference: **Revenue growth this year is expected to exceed 30%, which is higher than the growth rate of capital expenditure, meaning the company is not overextending itself into the future.** Visibility into current demand is also exceptionally clear. Customers' long-term procurement commitments and prepayment arrangements provide Taiwan Semiconductor with order lock-in periods far exceeding industry norms, significantly reducing the uncertainty of capacity investment. In summary, Taiwan Semiconductor combines high Capacity Utilization Rate, a near-monopoly position in advanced process nodes, and continuously rising customer prepayment commitments, yet trades at a valuation below the industry average. A forward P/E ratio of approximately 21x is not only lower than the average of the Philadelphia Semiconductor Index but also far below that of hotter-market peers such as Intel and AMD. ### Related Stocks - [NVDA.US](https://longbridge.com/en/quote/NVDA.US.md) - [TSM.US](https://longbridge.com/en/quote/TSM.US.md) - [TSMX.US](https://longbridge.com/en/quote/TSMX.US.md) - [NVDL.US](https://longbridge.com/en/quote/NVDL.US.md) - [SOXX.US](https://longbridge.com/en/quote/SOXX.US.md) - [XSD.US](https://longbridge.com/en/quote/XSD.US.md) - [NVDX.US](https://longbridge.com/en/quote/NVDX.US.md) - [SMH.US](https://longbridge.com/en/quote/SMH.US.md) - [TSMU.US](https://longbridge.com/en/quote/TSMU.US.md) - [NVDU.US](https://longbridge.com/en/quote/NVDU.US.md) - [TSMG.US](https://longbridge.com/en/quote/TSMG.US.md) - [NVDY.US](https://longbridge.com/en/quote/NVDY.US.md) - [SOXL.US](https://longbridge.com/en/quote/SOXL.US.md) - [MSFT.US](https://longbridge.com/en/quote/MSFT.US.md) - [META.US](https://longbridge.com/en/quote/META.US.md) - [GOOGL.US](https://longbridge.com/en/quote/GOOGL.US.md) - [GOOG.US](https://longbridge.com/en/quote/GOOG.US.md) - [AMZN.US](https://longbridge.com/en/quote/AMZN.US.md) - [INTC.US](https://longbridge.com/en/quote/INTC.US.md) - [AMD.US](https://longbridge.com/en/quote/AMD.US.md) - [SSNGY.US](https://longbridge.com/en/quote/SSNGY.US.md) - [SMSN.UK](https://longbridge.com/en/quote/SMSN.UK.md) - [NVD.DE](https://longbridge.com/en/quote/NVD.DE.md) ## Related News & Research - [Here's why Nvidia stock popped today](https://longbridge.com/en/news/285417685.md) - [Nvidia Rival Cerebras Systems Eyes IPO Price Hike To $150–$160 Per Share As Investor Frenzy Over AI Chipmaker Intensifies: Report](https://longbridge.com/en/news/285899153.md) - [Fortinet deepens FortiAIGate integration with Nvidia to secure enterprise AI workloads at scale](https://longbridge.com/en/news/286104937.md) - [Ballast Advisors LLC Grows Stock Position in Taiwan Semiconductor Manufacturing Company Ltd. $TSM](https://longbridge.com/en/news/285329026.md) - [Nvidia Director's $200 Million AI Gift Puts USC Back In The Race](https://longbridge.com/en/news/285419613.md)