The Potential of TSMC & Nvidia’s AI Chip Production

Amongst the evolution of AI, there is an unprecedented demand for AI accelerator chips.

Amid intensifying global competition in semiconductor technology, the implementation of the CHIPS and Science Act, broader national efforts to revitalise domestic high-tech manufacturing and growing geopolitical tensions, Taiwan’s role is crucial in the global chip supply chain.

In the development of the US semiconductor industry and global AI chip production, according to Reuters, Taiwan Semiconductor Manufacturing Co (TSMC) is engaging in strategic discussions with Nvidia regarding the production of advanced Blackwell AI chips at its new Arizona facility.

This potential collaboration, valued in the billions of dollars, reflects the ongoing efforts to reshape global semiconductor supply chains and strengthen America's position in advanced chip manufacturing.

The discussions on a deeper level, reflect a broader push by both the US government and major technology companies to establish more resilient and geographically diverse semiconductor production capabilities, especially for cutting-edge AI processors that have become increasingly critical to global technological advancement.

Nvidia's Blackwell architecture, representing the next generation of AI processors, has garnered intense interest from tech giants and enterprises worldwide, making the decision about where to manufacture these sophisticated components a matter of both strategic and economic significance.

Meanwhile, TSMC's US$40bn investment in Arizona marks one of the largest foreign direct investments in US history.

TSMC considers producing Nvidia AI chips in Arizona

TSMC is the world's largest contract chipmaker and is reportedly in discussions with Nvidia Corp to produce Blackwell AI chips at TSMC's new plant in Arizona.

Nvidia's Blackwell chips, unveiled in March, have experienced high demand from customers involved in generative AI and accelerated computing.

These chips are said to be 30 times faster at tasks such as generating chatbot responses compared to previous models.

The Blackwell processor packs 208 billion transistors and is manufactured using a custom-built 4NP TSMC process.

If the agreement is finalised, it would secure another customer for TSMC's Arizona facility, which is scheduled to begin volume production next year.

Apple and AMD

Furthermore, Apple and AMD are reportedly current customers at the Arizona plant.

The facility is part of TSMC's investment in the state, which includes the construction of two chip factories. 

This means that the potential collaboration between TSMC and Nvidia aligns with the broader trend of major semiconductor companies expanding their US operations. 

Intel

Intel, for instance, has received significant funding for its factories in Arizona, New Mexico, Oregon, and a US$20bn fab in Ohio.

Micron

Similarly, Micron is investing US$100bn in a memory chip plant in Syracuse, New York.

Challenges in complete US-based production

While TSMC plans to produce the front-end process of Nvidia's Blackwell chips in Arizona, the chips will still need to be shipped back to Taiwan for packaging.

This is because the Arizona facility does not have chip on wafer on substrate (CoWoS) capacity, which is essential for the Blackwell chips.

Currently, all of TSMC's CoWoS capacity is located in Taiwan.

This limitation highlights the complexities of establishing a fully independent semiconductor supply chain in the US.

Despite significant investments, certain specialised processes remain concentrated in specific regions, necessitating a global approach to chip production.

Investment and government support

TSMC is investing tens of billions of dollars in building three facilities in Phoenix. 

The project has received significant subsidies from the US government, which aims to bring semiconductor manufacturing back to the US.

This aligns with the broader US strategy to strengthen domestic chip production capabilities and reduce reliance on foreign manufacturers.

The CHIPS and Science Act, enacted in August 2022, has played a crucial role in facilitating these investments.

The Act provides US$52bn in subsidies for semiconductor manufacturing, with eight corporations already securing over half of the planned federal funding.

TSMC itself has received US$6.6bn in funding from the US government for its Arizona operations.

However, the scale of investment required for cutting-edge semiconductor manufacturing remains immense.

TSMC allocated US$44bn in 2022 alone to expand its chip-making capacity.

This underscores the need for continued collaboration between private industry and government to maintain competitiveness in the global semiconductor market.

Explore the latest edition of Technology Magazine and be part of the conversation at our global conference series, Tech & AI LIVE.

Discover all our upcoming events and secure your tickets today.

Technology Magazine is a BizClik brand