Morgan Stanley dissects AI supply chain again: TSMC CoWoS capacity surges by 33%! HBM demand doubles

According to Zhitong Finance APP, Morgan Stanley released a research report stating that there is strong demand in the global AI supply chain. TSMC's (2330.TW, TSM.US) CoWoS advanced packaging capacity continues to expand, with total capacity expected to reach 93kwpm by 2026. The Chinese AI market faces hardware supply bottlenecks, and some developers may turn to Huawei's chip solutions. Additionally, there is optimism for Asian ASIC design service providers, such as Alchip's performance in the Trainium3 project. Investors remain optimistic about the AI industry but are concerned about the sustainability of demand and investment opportunities outside of NVIDIA (NDVA.US).

Report Mind Map:

The main content of the report is as follows:

1. Core Background and Overall Market Sentiment

Morgan Stanley's global semiconductor team met with about 20 companies and AI industry experts and investors in Taiwan and Beijing to understand the AI supply chain situation.

Investors are very optimistic about AI, but key issues focus on potential problems with AI demand and investment targets outside of NVIDIA.

2. TSMC CoWoS Capacity Related Situation

2026 Capacity Forecast: TSMC's total CoWoS capacity in 2026 is expected to be around 90-95k, close to the previous forecast of 90k, representing a 33% increase from the 70k at the end of 2025.

Detailed Capacity Changes: CoWoS-L may expand to 68k (previously estimated at 55k), indicating strong demand for Blackwell or Rubin, thus raising the 2026 TSMC CoWoS capacity forecast from 90kwpm to 93kwpm, while non-TSMC CoWoS capacity remains at 12kwpm.

Customer Demand Adjustments

NVIDIA: The total consumption of CoWoS in 2026 remains at 580k units, with CoWoS-L raised from 540k to 550k, and CoWoS-S lowered.

Broadcom: Due to increased demand for Meta's MTIAv3 chips, the 2026 CoWoS consumption is raised to 110k units.

AWS+Alchip: Due to strong demand for Trainium3, CoWoS bookings are raised from 30k to 40k.

3. Status of the Chinese AI Market

Demand and Supply: The demand for Chinese AI applications/inference is strong, but hardware supply is a bottleneck.

NVIDIA B30 Chip: Chinese AI developers are aware of this chip but have not confirmed formal purchase orders; the Taiwanese supply chain shows a total of 2 million wafer orders for this chip in 2H25, with an annual production capacity of about 5 million units Alternative solution: If B30 cannot be shipped to China, some developers plan to switch to Huawei chips, but Huawei 910C has not yet been seen for sale; some developers are waiting for the supply situation of B30 before increasing capital expenditures, and their own ASICs can only run inference.

LLM progress: The new generation of large language models in China is delayed due to GPU capacity limitations in training.

IV. Asian ASIC Design Service Providers

AWS ASICs: Alchip is the sole source for Trainium3 XPU, with revenue expected to grow strongly in 2026, depending on TSMC's 3nm wafer and CoWoS allocation; Marvell focuses on "XPU-attach" chips, with the lifecycle and related revenue of its Trainium determining growth in 2026.

Trainium4: Design service providers are expected to be confirmed in July, with Alchip having a significant opportunity.

V. AI Chip Testing and Other Supply Chain Situations

The AI chip testing supply chain indicates that the testing time for Blackwell chips may rebound from the current 600-700 seconds to 800-900 seconds, due to the addition of new testing equipment and KYEC's involvement, with a positive outlook for KYEC's market share in 2026.

VI. Industry Data and Forecasts

2025 Cloud Semiconductor Growth: Preliminary data shows strong growth in cloud semiconductors in 2025, corroborated by aspects such as the AI chip testing supply chain.

CoWoS Demand Breakdown: In 2026, NVIDIA accounts for 66% of CoWoS demand, Broadcom for 13%, AMD for 7%, etc. (see Exhibit 4-6 below for details).

Important Questions Q&A:

Question 1: What is the growth situation of TSMC's CoWoS capacity in 2026, and how will it affect the demand from related customers? Answer: Taiwan Semiconductor's CoWoS total capacity in 2026 is expected to be around 90-95k, a 33% increase from the 70k at the end of 2025, with CoWoS-L potentially expanding to 68k, reflecting strong demand from Blackwell or Rubin. The impact on customer demand includes: NVIDIA's CoWoS-L consumption being raised to 550k; Broadcom increasing CoWoS consumption to 110k due to rising chip demand related to Meta; AWS+Alchip raising their order from 30k to 40k due to Trainium3 demand.

Question 2: What are the main issues facing the Chinese AI market and what measures are being taken to address them?

Answer: The main issue in the Chinese AI market is the hardware supply bottleneck, despite strong application/inference demand. Chinese developers are focusing on NVIDIA's B30 chip, with the Taiwanese supply chain indicating 2H25 wafer orders of 2 million units, but formal purchase orders have not been confirmed. In terms of measures, if the B30 cannot be shipped, some developers plan to switch to Huawei chips, although the Huawei 910C has not yet been released; some developers are waiting for the B30 supply situation before deciding to increase capital expenditures, and their own ASICs can only run inference.

Question 3: What is the competitive landscape for ASIC design service providers in Asia?

Answer: In terms of AWS ASICs, Alchip is the sole source for Trainium3 XPU, with revenue expected to grow significantly in 2026 due to this project, depending on Taiwan Semiconductor's 3nm wafer and CoWoS allocation; Marvell is focusing on "XPU-attach" chips. Additionally, the design service provider for Trainium4 is expected to be confirmed in July, with Alchip having a strong chance of winning.

Other charts: 1. Taiwan Semiconductor is expected to produce 5.1 million chips in 2025, with total shipments of GB200 NVL72 expected to reach 30,000 sets for the year.

Left axis (LHS): Quarterly shipment volume (in millions), representing Blackwell chip production

Right axis (RHS): (in thousands of sets), representing the number of NVL72 racks

1. 2025 projected advanced process wafer consumption for AI semiconductor foundries and high bandwidth memory (HBM) demand calculated by customer segmentation

Expected high bandwidth memory consumption in 2025 - Nvidia is seen as the largest customer

1. High Bandwidth Memory (HBM) Through-Silicon Via (TSV) capacity is expected to double by 2025

1. High Bandwidth Memory (HBM) demand is expected to be nearly double that of 2024 in 2025