TSMC capacity squeeze intensifies competition among AI chip customers

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TSMC AI chip competition

Highlights

TSMC reported record profit for a sixth straight quarter and forecasts fourth-quarter revenue to rise 58% year-on-year, driven by advanced chip demand.
Competition among AI chip customers has intensified due to TSMC's limited wafer capacity, with top 10 customers making up 78% of 2025 net revenue.
TSMC announced an additional $100 billion investment in July, increasing its total Arizona fab commitment to $265 billion and is considering a Texas site.

Advanced chip demand strains factory capacity

As reported by CNBC, TSMC is facing mounting pressure from customers that need more wafer capacity than the company can currently provide. The world’s largest contract chipmaker says demand for advanced manufacturing remains strong, with North American CEO Sajiv Dalal telling CNBC he gets at least 10 calls a day about wafer supply.

TSMC posted record profit for a sixth straight quarter on Thursday and expects fourth-quarter revenue to be 58% higher than a year earlier, driven by demand for advanced chipmaking technologies. The company makes most of the world’s leading-edge semiconductors, including processors from Nvidia, AMD and Broadcom used in AI workloads, while also producing custom AI accelerators for Apple, Google, Amazon, Microsoft, Meta and OpenAI.

Jordan Klein, an analyst at Mizuho Securities, says competition for supply is "extremely fierce" as customers seek leverage over scarce production slots. He says that if compute demand keeps growing at the current rate over the next 12 to 18 months, TSMC constraints could undermine industry expansion plans and ambitious revenue targets tied to AI infrastructure spending.

Expansion plans and startup pressure

Capacity limits are especially significant for smaller chip companies that are competing against customers placing much larger orders. TSMC had 534 customers in 2025, and while it does not identify them, its top 10 customers accounted for 78% of net revenue, with the top two contributing 19% and 17%, respectively.

Sid Sheth, chief executive of AI chip startup D-Matrix, says TSMC is selective but still has an incentive to support emerging chipmakers that could become major clients over time. He says the company backed Nvidia and Broadcom when they were much smaller, reflecting a long-term commercial interest in cultivating future high-volume customers.

At the same time, TSMC is moving to add more production lines across multiple regions. The company is building new fabs in Taiwan, Japan and Arizona, where it is making advanced chips in the U.S. for the first time; in July, it announced an additional $100 billion investment and several more fabs on top of six already planned in Arizona, lifting its total commitment there to $265 billion. TSMC is also reportedly considering a separate fab location in Texas.

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