Due to the success of companies like Nvidia or OpenAI, many people know about the AI arms race, the corresponding hype bubble and the chips required to power the underlying data centers. Fewer people know that even though Nvidia sells AI-focused products like their A100, H100 or B100 data center platforms, they don't produce the semiconductors themselves. This task falls to TSMC, a chip foundry from Taiwan. Foundries manufacture all kinds of semiconductors for companies that can't or won't produce chips themselves. And in the field of semiconductor foundries, no other company even comes close to TSMC's dominance.
Data from Counterpoint Research shows that in the first quarter of 2024 TSMC had a revenue-based market share of 62 percent. This is unsurprising, as TSMC has been manufacturing chips for Nvidia for decades and the latter is struggling to keep up with increasing demand for their hardware powering the AI gold rush. "We’ve observed more evidence to support that the AI demand is real, with increasing CAPEX of cloud service providers adopting the AI hardware first and the following would be enterprises", says Counterpoint Research analyst Adam Chang. "We expected the demand for AI to remain strong in 2024, and probably more upsides in 2025. However, non-AI demand remained sluggish, but we think the inventory set-up is promising after several quarters of de-stocking."
While it's unclear when the dam on this particular hype breaks and what this will do to the bottom lines of both TSMC and Nvidia, it's unlikely that the former's market share will take any major hits. Historically, TSMC has had a foundry market share upwards of 50 percent since at least mid-2021, four times as big as its biggest competitor Samsung Foundry. However, Samsung's foundry market share needs to be taken with a grain of salt since they also produce the chips for their products.
Notably, roughly 80 percent of all semiconductor foundry revenue is split between South Korean and Taiwanese companies, with GlobalFoundries from the U.S. achieving a share of 8 to 6 percent over the last three years. One of the more interesting stories of recent months is the rise of SMIC, which, according to Counterpoint Research's first-quarter analysis, now ranks third in worldwide foundry revenue. This is despite the United States imposing strict export restrictions of advanced semiconductors to China and considering even tighter control of the People's Republic's access to such technologies. According to the 2024 factbook of the Semiconductor Industry Association, a U.S. lobby group, China had a 29 percent market share in worldwide semiconductor sales in 2023 and was responsible for 53 percent of semiconductor sales in the Asia-Pacific region in the same year.
