Some assume that Taiwan Semiconductor Manufacturing Company's (TSM 1.59%) slower growth rate is the first sign of fading artificial intelligence (AI) demand. The numbers point to a different truth.
When quarterly revenue climbs past $30 billion -- as TSMC's has -- percentage growth loses its meaning. Each 10% increase now equals more than $3 billion in new business. The scale alone makes the growth look smaller than it is. Analysts still expect mid-teens- to 20-plus-percent growth into 2026, a sign that demand continues to run ahead of supply. This is a big-numbers illusion, not a shift in appetite for compute.
NYSE: TSM
Key Data Points
The bottleneck is packaging, not demand
The real constraint is not the silicon itself; it is the work that follows. If the wafer is a stack of printed pages, then packaging is the binding that turns them into a finished book. Chip-on-wafer-on-substrate (CoWoS) is the limited‑edition boxed set, the version collectors try to claim before it disappears.
Meta Platforms, OpenAI, Alphabet, and every company training large AI models want that premium edition because it delivers speed and immediate access, and there are never enough copies to meet demand. Nvidia, AMD, and custom‑silicon teams are using most of TSMC's advanced packaging throughput, and the schedule is effectively booked through 2025 and largely allocated into 2026, with customers already reserving the next year's capacity. Scarcity in this final assembly stage -- not the supply of silicon -- is what keeps demand ahead of supply.
Advanced packaging also strengthens TSMC's economics. Industry estimates indicate that CoWoS and 3DFabric carry higher margins than standard backend work, so every shift in demand toward these premium steps increases the value TSMC earns from each chip. The scarcity customers feel at the system level is the same scarcity that raises utilization inside TSMC's most profitable lines.
In a market driven by AI, the bottleneck is a challenge, but it is also where TSMC generates its strongest mix of revenue. Scarcity also gives TSMC quiet pricing power. When the most advanced packaging lines are fully booked, customers compete for priority and faster turnaround, and TSMC captures more value from each design. In a market where AI timelines matter more than price, capacity becomes its own form of leverage. The same constraint that slows deliveries is the one that strengthens TSMC's ability to price premium work, reinforcing the economics behind its most advanced packaging lines. And with TSMC's boxed sets permanently on backorder, customers have begun searching for another shop that can keep the shelves stocked.
Image source: Getty Images.
Why Powertech gets the first look
Designers turn to Powertech in Taiwan because it offers CoWoS-adjacent packaging and credible yields, delivers predictable timelines, and scales reliably at the pace AI customers require. In a market where boxed sets are selling out faster than TSMC can bind them, Powertech becomes the co‑publisher that handles the extra run when demand outstrips the first house's capacity.
There is precedent for this approach. During past demand spikes, companies such as AMD and Nvidia worked with outside partners to take on parts of the packaging load while TSMC focused on the highest‑end steps. The pattern is the same now. When scarcity appears, customers look for a second shop that can keep the shelves stocked, and Powertech is the first place they turn.
Advanced Semiconductor Engineering (ASX 2.70%) is also preparing for the surge. It has been expanding advanced packaging and supporting infrastructure, reflecting its deeper role in the packaging ecosystem built around TSMC. ASE stands out because it is one of the few companies with the scale and reputation to ramp up quickly when demand rises, adding capacity to the parts of the workflow that do not rely directly on TSMC's own lines. Its recent investments show how the broader ecosystem is positioning itself around the same bottleneck.
Intel's packaging ambition, and why it's not first in line
Intel (INTC 3.53%) has made advanced packaging a centerpiece of its strategy, and its technologies -- from Foveros to EMIB -- continue to evolve. The company's leaders have emphasized packaging as a priority, and Intel is investing heavily to compete for future AI work. But customers that need capacity today look elsewhere. They want a shop that fits cleanly into their existing production flow, delivers predictable schedules, and has years of customer-tested reliability. Intel is building toward that position, but it is not there yet.
NASDAQ: INTC
Key Data Points
The barriers are practical. Most AI chips are built on TSMC wafers, and Intel's packaging lines do not yet fit naturally into that workflow. Any shift would likely require new logistics, new qualification, and a fresh round of yield learning. For customers racing to train larger models, those risks matter more than the promise of a new supplier. Intel also needs time to prove consistent performance at hyperscale volume. Its packaging lines are expanding, but they will take years to reach the scale and predictability AI builders expect.
Intel may become a strong alternative over time, but today the fit is not there. Its packaging lines are improving, and if Intel continues to invest, prove reliability, and win AI customers, it could become a viable second shop later in the decade. For now, customers choose the path with the least friction, and Intel is still building toward that role.
TSMC's long game
TSMC's long-term strategy is clear. Powertech helps absorb overflow demand today, but the most advanced packaging work and the know-how behind it will remain inside TSMC. The company is expanding its CoWoS and 3DFabric lines in Taiwan, building new advanced packaging facilities beside its Arizona fabs, and has signaled that parts of its advanced packaging capability may eventually follow its fabs to Japan as those mature. The aim is a global network that keeps the hardest work close to TSMC while placing capacity nearer to customers.
Arizona shows how that model will take shape. Logic production will sit next to advanced packaging plants, creating a self-contained pathway for customers in the United States that avoids the need to send work back to Taiwan for final assembly. Japan is moving in a similar direction. Its first fabs will still rely on Taiwan for high-end packaging, but TSMC has explored shifting parts of 3DFabric closer to Japan as demand increases. These moves will take time, but the direction is steady. TSMC plans to meet rising AI demand with a global footprint built around its most advanced capabilities.
This isn't an AI slowdown. It's an AI traffic jam.
All signals show that AI growth remains steep. Cloud GPU shortages, expanding training clusters, rising sovereign demand, and enterprise deployments all point in the same direction. The constraint is not appetite, but assembly. TSMC cannot package chips as quickly as customers want to ship them, and that creates the illusion of slowing demand.
For long-term investors, the view is clearer. This is not a story about fading interest in AI. It is a story about where value concentrates when the system reaches its limits. The companies that control the bottlenecks often create the next wave of growth. TSMC sits at the center of that dynamic and controls roughly 70% of the global foundry market. As packaging capacity rises and the constraints ease, the next leg of AI growth will follow.
