Barron's: TSMC Plans Price Hike — Can Tech Giants Afford the AI Boom?

Barron's reports that amid surging demand for artificial intelligence (AI) chips, Taiwan Semiconductor Manufacturing Company (TSMC-US) is expanding its capital expenditures and overseas footprint while reportedly planning to raise chip foundry prices starting in 2027, with increases of up to 10%. Analysts believe this move not only highlights TSMC's pricing power in advanced processes but also sends a clear signal of sustained growth to the semiconductor equipment supply chain.

The Nikkei Asia, citing unnamed sources, reported that TSMC plans to raise prices from 2027.

JPMorgan analyst Gokul Hariharan last week forecast that TSMC could increase pricing for advanced processes by 8% to 10% to offset rising costs from U.S. expansion and other overseas investments, maintaining overall profitability.

TSMC is the primary manufacturer of NVIDIA's (NVDA-US) AI chips and also produces the core processors for Apple's (AAPL-US) iPhones, as well as chips designed by Advanced Micro Devices (AMD-US), Broadcom (AVGO-US), and others.

If TSMC raises its foundry prices, costs could gradually be passed down the supply chain, further increasing the expenses of building AI data centers and computing infrastructure.

Major tech companies are estimated to spend around $650 billion on AI infrastructure this year.

JPMorgan projects that global AI capital expenditure will surpass $1 trillion by 2027. While rising chip prices may increase cost pressure on tech giants, strong demand for high-end AI chips and limited alternative capacity in advanced processes are expected to prevent any significant drop in customer demand in the short term.

TSMC has recently raised its capital expenditure forecast for 2026 again, citing the long-term growth trend in AI as a key reason. The company posted record-high revenue in Q2, up 36% year-on-year, reflecting robust demand for AI accelerators and high-performance computing chips.

TSMC has also committed to adding $100 billion in U.S. investment, bringing its total U.S. investment to $265 billion, further expanding advanced process capacity overseas. This large-scale construction and capacity expansion is expected to directly boost demand for lithography, deposition, etching, inspection, metrology, and advanced packaging equipment.

Analysts believe that Applied Materials (AMAT-US), ASML (ASML-US), Lam Research (LRCX-US), KLA (KLAC-US), and MKS Instruments (MKSI-US) are poised to be the main beneficiaries of TSMC's increased capital spending.

Applied Materials expects its semiconductor equipment business to grow over 30% in calendar year 2026, with advanced packaging being a key growth driver. The company's financial outlook already factors in the impact of export restrictions.

ASML, meanwhile, is reportedly considering raising prices for chip manufacturing equipment, even as TSMC expresses concerns. China accounts for about 20% of ASML's total net sales, with demand for deep ultraviolet (DUV) lithography systems particularly sensitive to changes in export control policies.

The semiconductor equipment industry is currently influenced by two major forces: AI demand and geopolitical dynamics. On one hand, the AI boom is prompting foundry operators to expand advanced process and advanced packaging capacity earlier than expected, driving equipment orders. On the other hand, tighter U.S. export controls on chip technology may restrict some equipment shipments, lengthen licensing review times, and alter equipment vendors' regional revenue structures.

Although Intel (INTC-US) is actively pursuing foundry customers as an alternative to TSMC, JPMorgan believes Intel may not gain much from TSMC's price hikes.

Hariharan forecasts that TSMC will maintain over 95% market share in the first two waves of demand for its N2 and A16 processes. TSMC's progress on the A14 process is also expected to keep it ahead of Intel and Samsung Foundry. Revenue contributions from the A14 process are anticipated to begin in 2029.