TSMC Ramps Up Massive Expansion! 2nm and Advanced Packaging in Full Swing — Which Supply Chain Stocks Will Win Big?

TSMC has raised its annual capital expenditure to a record high, providing the strongest endorsement of robust global AI infrastructure demand and cementing its dominant leadership over competitors in next-generation 2nm process technology and advanced packaging. This massive influx of capital will usher in a new golden era of growth for Taiwan’s domestic semiconductor supply chain!

By Wei Sheng-Feng

During its latest Q3 earnings call, TSMC announced an upward revision of its 2024 capital expenditure from the initial $52–56 billion to $60–64 billion, citing strong demand for advanced processes driven by AI infrastructure. It also raised its full-year U.S. dollar revenue growth forecast from 30% to over 40%. This move dispels market concerns about the sustainability of AI demand and confirms strong visibility for next-generation 2nm process and advanced packaging orders.

TSMC’s capital expenditure is a key indicator of global semiconductor and AI industry trends. Looking back at recent years: prior to and including 2020, TSMC’s capex was driven by 5G smartphones and high-performance computing (HPC) demand; from 2021 to 2022, capex surged as 5nm and 3nm processes entered mass production; in 2023, capex briefly adjusted due to weak global consumer electronics demand; but in 2024 and beyond, semiconductor market conditions have rebounded, with AI demand far exceeding expectations, leading to a significant capex increase.

What makes TSMC’s 2024 capex particularly notable is that after a cautious six-month evaluation, the company raised its annual capex from the initial $52–56 billion to $60–64 billion. Chairman Mark Liu emphasized that TSMC does not immediately allocate capex for new fabs upon receiving customer orders. Instead, it verifies upstream and downstream demand across the supply chain to avoid risks of duplicate orders. This prudent approach ensures that capex increases are based on confirmed, sustainable demand.

Given TSMC’s conservative management style, production expansion decisions are grounded in signed customer contracts and advance payments. Increased capex directly indicates that new capacity has already been pre-booked, serving as a leading indicator of explosive revenue growth over the next 1–2 years. In March, the market had high hopes for an early capex revision, but TSMC maintained its initial forecast. It wasn’t until the July earnings call that the significant increase was announced. Given TSMC’s history of caution, this decision signals that AI demand is truly stronger than anticipated.

Alongside the capex hike, TSMC also raised its full-year U.S. dollar revenue growth from 30% to over 40%. This reflects not just revenue growth, but TSMC’s high confidence in multi-year AI demand. The global AI wave is accelerating, with major cloud service providers (CSPs) like OpenAI, Microsoft, Google, Meta, Amazon, Oracle, and xAI expanding AI data center investments. This year, the top five CSPs’ combined capex reached $725 billion—over 60% higher than last year’s $450 billion—driving rapid growth in demand for AI chips from NVIDIA and AMD. Nearly all AI chips rely on TSMC’s advanced process and packaging technologies for production.

The clear capital flow chain of global AI investment is: CSPs increase capex → boost AI chip demand → AI chip designers place more orders → TSMC expands production → TSMC raises capex → equipment, materials, facility engineering, and packaging suppliers all benefit.

Dual Engines: 2nm and CoWoS — TSMC Widens Its Lead

TSMC holds over 90% market share in advanced processes below 7nm, with key clients including NVIDIA, AMD, Intel, MediaTek, Broadcom, Apple, and Google. Despite this dominance, TSMC continues to expand its lead over competitors to secure market leadership for the next 5–10 years. With AI evolving rapidly and chip designs becoming increasingly complex, TSMC must keep advancing.

For example, in 2024, 70–80% of TSMC’s capex will go toward advanced processes to accelerate 2nm production line setup and 3nm capacity expansion. About 10–20% will fund specialty technologies, and approximately 10% will support advanced packaging (e.g., CoWoS), testing, and photomask infrastructure.

Article authorized by *Investment Insight Weekly* Issue 2414