TSMC's Dominance Grows in Advanced Chip Packaging Amid Rising AI Demand

A global competition is underway to build Artificial Intelligence (AI) infrastructure, leading to billions of dollars in investment in advanced chip packaging technology. According to an NDTV report, this segment of technology was previously not considered very significant, but it has now become a major bottleneck in the production of the world's most powerful processors.

Taiwan's TSMC is the world's largest contract chipmaker and dominates the most cutting-edge advanced packaging technology. This specifically includes 'Chip-on-Wafer-on-Substrate' (CoWoS) technology. This technology connects different silicon components, such as processors and memory chips, onto a shared base, allowing them to operate together at very high speeds. Companies like Nvidia, AMD, and Broadcom, as well as cloud companies developing their own AI chips, make extensive use of this technology.

However, due to limitations in TSMC's production capacity, some chip designers are now seeking other alternatives. An industry official stated that Nvidia is providing billions of dollars in financing to 'SiliconWare Precision Industries' (SPIL), a unit of Taiwan's ASE Technology, to increase CoWoS packaging capacity. This funding will be used for new factory space and equipment. Nvidia has not reacted to this matter, while ASE stated that they do not comment on market rumors related to their customers.

Pat Gelsinger, partner at Playground Global and former CEO of Intel, told reporters in Taipei, "Packaging was something you never worried about." Gelsinger estimated that advanced packaging could eventually account for half of the total value of a chip product, as some of today's graphics and central processing units integrate 10 or more, and sometimes up to 20, chips.

According to research firm Yole Group, for the first time in 2026, revenue generated through advanced packaging will exceed revenue from traditional methods. Capital investment in this technology is expected to reach nearly 28 billion dollars. Additionally, Powertech plans to invest 400 million dollars in an advanced packaging joint venture with Broadcom in Singapore.

This major shift in the production of powerful chips is occurring because more chip designers are now using advanced packaging to integrate multiple chips, such as processors and memory, into a single package. This allows the entire system to operate faster together. For decades, the primary use of packaging was merely to protect chips and provide electrical connections to link them with circuit boards.

This transition has occurred because increasing the number of small switches, or transistors, inside a chip or reducing their size has now become more expensive and difficult, making it hard to increase performance. As the demand for AI chips has exceeded available packaging capacity, companies from Nvidia and AMD to smaller Taiwanese firms are increasing production, and equipment manufacturers are developing new tools.