AI Chip Production Capacity Nearly Booked! Supply Chain Enters 'Prepayment Era': Trillions in Contracts Reshaping Semiconductor Power Dynamics

The global competition for AI chips has moved beyond mere architectural and computational power comparisons, quietly descending into a hidden war deep within the supply chain over 'scarce production capacity'.

From wafer foundries, HBM, advanced packaging to silicon photonics materials, core production capacity for the next three to five years is being locked in by major corporations through prepayments, long-term agreements (LTAs), and even equity investments. This not only marks the end of traditional buyer-seller relationships but also signals a fundamental restructuring of power in the semiconductor industry.

NVIDIA's cumulative supply chain commitments totaling as high as $119 billion, Micron's 16 strategic customer agreements, Samsung and Broadcom's pioneering 'memory + foundry + packaging' integrated delivery model, and Soitec's prepayments for silicon photonics materials—all prove that production capacity is no longer a commodity but a strategic asset.

To secure capacity, companies are deploying various strategies. The so-called 'prepayment era' is essentially an industry-wide 'capacity demarcation movement', where downstream customers use substantial upfront capital to secure priority access to future production and technological influence.

NVIDIA stands as a prime example. As of April this year, its total manufacturing and supply commitments reached $119 billion, with $95 billion to be paid within the current fiscal year. This month, it also signed a $1.5 billion agreement with packaging giant Amkor, providing prepayments to expand advanced packaging capacity in the U.S. and align technical roadmaps.

This strategy has already extended into optical interconnects: NVIDIA invested $2 billion in Coherent and signed procurement agreements worth tens of billions of dollars to secure future capacity. Its competitive moat has thus expanded from the CUDA software ecosystem to a systemic capability of organizing the supply chain through capital deployment.

Memory giants are opting to lock in future capacity through contracts. Micron has signed 16 'take-or-pay' strategic customer agreements, with remaining obligations totaling approximately $100 billion and having already received around $18 billion in cash prepayments, securing 20% of future DRAM and one-third of NAND output. These price-capped agreements are expected to account for over 50% of Micron's total revenue, significantly enhancing its pricing power and cyclical resilience.

SK Hynix has similarly signed five-year LTAs with around 10 customers. The ramp-up of its HBM4 shipments drove first-half revenue to surpass 100 trillion KRW, a 257% year-on-year surge.

The most disruptive move is the Samsung-Broadcom partnership. The two signed a memorandum in July to invest over $200 billion in memory, foundry, and packaging by 2030, breaking the traditional procurement model.

Previously, Broadcom had to source logic chips, HBM, and packaging from different vendors and outsource assembly. Now, Samsung leverages its unique 'end-to-end' semiconductor capabilities to offer 'integrated delivery' covering 2nm processes and 2.5D/3D integration—marking a shift from binding single production nodes to deep integration across the entire AI chip manufacturing system.

This capacity-binding trend is spreading upstream. Silicon photonics leader Soitec disclosed that its photonics SOI sales are doubling year-on-year and is receiving customer prepayments to expand production—sending a strong signal that even before co-packaged optics (CPO) scales up, its core substrate capacity is already being pre-booked.

The driving force is a fundamental shift in AI chip design and industry logic: first, AI accelerators have become highly complex system-level engineering, involving advanced processes, HBM, 2.5D/3D packaging, and silicon photonics chips. A shortage in any single component can halt the entire production line. TSMC Chairman Mark Liu admitted that tight advanced packaging capacity is constraining customer growth, prompting the company to raise its 2026 capex to over $60 billion, with 10–20% allocated to packaging and testing.

Second, AI capacity is increasingly specialized—HBM stacking, packaging design, and test procedures require co-customization with specific clients, making suppliers reluctant to blindly expand based on market forecasts.

Third, the mismatch between chip iteration speed and fab construction cycles forces customers to trade long-term contracts for supply certainty.

Experts note that new rules are reshaping the industry ecosystem. For upstream suppliers, prepayments bring expansion funding, stable utilization rates, and predictable cash flows—but at the cost of sacrificing profit elasticity during spot price surges and deepening dependency on major clients.

For giants like NVIDIA and Broadcom, securing capacity ensures shipment timelines and technological definition rights, but also entails risks of contract defaults and massive capital lock-up if demand falls short.

The biggest impact may fall on small and mid-sized chip firms. As major players encircle core resources with five-year contracts and billion-dollar prepayments, smaller companies may face unavailability of capacity, price-driven allocation, extended lead times, or even forced use of outdated processes. 'Designing a chip' is no longer the sole entry barrier—balance sheet strength to secure supply chains is becoming a new line of survival.

On whether long-term agreements will end the semiconductor cycle, experts give a negative answer, arguing that LTAs merely change the form of risk—from past inventory gluts and price crashes to future contract renegotiations, prepayment impairments, and idle capacity.

More concerning is the risk of 'double booking': customers fearing shortages may over-order from multiple suppliers, misleading the entire industry into over-expansion. Liu stated that TSMC now verifies not only customer demand figures but also data center construction progress and power deployment to prevent chips from ending up as inventory.

Notably, customers are emerging as the fourth category of capital contributors to semiconductor expansion, alongside corporate cash flow, bank loans, and government subsidies. This deep capital and capacity alliance may shift the AI chip industry from 'market-driven' cyclical fluctuations to a new era of 'capital-locked' structural competition. In this quiet but profound transformation, a winner-takes-all scenario may accelerate.