TSMC Tells NVIDIA and Broadcom It Cannot Meet AI Chip Demand as Intel Eyes Opening

Record Profits Amid Capacity Crisis

TSMC reported fourth quarter net profit of 16 billion dollars, a 35 percent year over year increase that beat analyst estimates and marked the company's eighth consecutive quarter of profit growth. Revenue reached approximately 33.7 billion dollars, with advanced chips measuring 7 nanometers or smaller accounting for 77 percent of wafer revenue.

Despite these stellar financial results, industry sources indicate that demand for advanced node wafers remains about three times greater than available supply. TSMC Chief Financial Officer Wendell Huang acknowledged the challenge during the earnings call, stating that the company expects business to be supported by continued strong demand for leading edge process technologies.

The CoWoS Packaging Bottleneck

Advanced packaging capacity, particularly CoWoS technology critical for AI chips, remains the primary constraint. CoWoS, which stands for Chip on Wafer on Substrate, is an advanced packaging technique that enables multiple chip components to be integrated together and connected to high bandwidth memory, essential for the performance demands of AI processors.

TSMC's monthly CoWoS capacity is expected to expand from roughly 70,000 wafers at the end of 2025 to approximately 115,000 by year end 2026. While this represents significant expansion, it falls far short of meeting total demand. NVIDIA has reportedly secured over 60 percent of TSMC's total CoWoS capacity through 2026 and 2027, leaving competitors scrambling for access.

The capacity crunch has had immediate consequences. Google reportedly cut its 2026 TPU production target from 4 million units to 3 million units due to limited access to TSMC's CoWoS packaging. Major customers have collectively locked in more than 85 percent of TSMC's total CoWoS production capacity, leaving less than 15 percent available for second tier AI chip manufacturers and startups.

Intel Sees Window of Opportunity

The supply constraints at TSMC have prompted a reassessment of Intel's foundry prospects. Multiple investment firms have upgraded their outlook on Intel stock in recent weeks, citing the TSMC bottleneck as a potential catalyst for Intel's contract manufacturing business.

Citi upgraded Intel from Sell to Neutral on January 15, setting a 50 dollar price target and highlighting the packaging bottleneck at TSMC. KeyBanc upgraded the stock to Overweight on January 13 with a 60 dollar price target, the highest on Wall Street. Melius Research upgraded Intel to Buy earlier in the month.

Intel's shares have gained roughly 19 percent since the start of 2026, bolstered by a meeting between CEO Lip Bu Tan and President Donald Trump on January 8. Following the meeting, Trump wrote on Truth Social that the United States Government is proud to be a shareholder of Intel. The US government has accumulated approximately 5.5 percent of Intel's shares and plans to acquire more, representing a significant vote of confidence in the company's strategic importance.

Geographic Diversification and Industrial Policy

Industry analysts emphasize that Intel doesn't need to displace TSMC to benefit from current market conditions. For customers facing multi quarter delays, available and reliable capacity can matter more than best in class but backlogged alternatives. Intel's foundry business provides geographic diversification and alignment with US industrial policy, factors gaining importance for technology firms seeking to diversify their manufacturing sources.

TSMC announced plans to increase capital expenditures to between 52 billion and 56 billion dollars in 2026, with the majority directed toward advanced processes and packaging capacity. However, even this aggressive investment schedule cannot immediately resolve the supply demand imbalance that has emerged as AI development accelerates faster than anticipated.

Looking Ahead

The semiconductor capacity crunch shows no signs of abating. Every major technology company is racing to expand AI capabilities, build larger models, and deploy more data center infrastructure, all of which requires cutting edge processors. The question now is whether alternative foundries like Intel can execute effectively and deliver competitive manufacturing yields at advanced nodes in time to capture the overflow demand from customers unable or unwilling to wait in TSMC's lengthening queue.

The coming months will be critical in determining whether Intel can convert this unique window of opportunity into sustainable foundry business, or whether TSMC's capacity expansion will eventually satisfy demand before competitors can establish themselves as viable alternatives.