OpenAI's recent chip deals heap more pressure on TSMC
In recent weeks, OpenAI has signed blockbuster deals with AMD and Broadcom to build vast numbers of AI chips. Much of the focus has been on the financial implications, since OpenAI will need hundreds of billions of dollars to make good on its promises. As important as it is to look at the quite implausible financials, we also need to look at the broader implications for the industry. Like, the chips themselves, what that spells for the AI industry as a whole, and the added pressure on TSMC, the only chip company that can actually build this stuff.
The Deals
OpenAI’s deal with AMD will see the chip giant build out 6 gigawatts’ (GW) worth of GPUs in the next few years. The first 1 GW deployment of AMD’s Instinct MI450 silicon will start in the back end of 2026, with more to come. AMD’s CFO Jean Hu believes that the partnership will deliver “tens of billions of dollars in revenue” in future, justifying the complicated way the deal is funded.
Meanwhile, Broadcom’s deal with OpenAI will see the pair collaborate on building 10 gigawatts’ worth of AI accelerators and ethernet systems that it has designed. The latter will be crucial to speed up connections between each individual system in OpenAI’s planned data centers. Like the deal with AMD, the first deployments of these systems will begin in the back half of 2026 and is set to run through 2029.
Phil Burr is head of product at Lumai, a British company looking to replace traditional GPUs with optical processors. He’s got 30 years experience in the chip world, including a stint as a senior director at ARM. Burr explained the nitty-gritty of OpenAI’s deals with both Broadcom and AMD, and what both mean for the wider world.
Burr first poured water on OpenAI’s claim that it would be “designing” the gear produced by Broadcom. “Broadcom has a wide portfolio of IP blocks and pre-designed parts of a chip,” he said, “it will put those together according to the specification of the customer.” He went on to say that Broadcom will essentially put together a series of blocks it has already designed to suit the specification laid down by a customer, in this case OpenAI.
Similarly, the AI accelerators Broadcom will build are geared toward more efficient running of models OpenAI has already trained and built — a process called inference in AI circles. “It can tailor the workload and reduce power, or increase performance,” said Burr, but these benefits would only work in OpenAI's favor, rather than for the wider AI industry.
I asked Burr why every company in the AI space talks about gigawatts worth of chips rather than in more simple numbers. He explained that, often, it’s because both parties don’t yet know how many chips would be required to meet those lofty goals. But you could make a reasonable guess if you knew the power draw of a specific chip divided by the overall goal, then cut that number in half, then remove an extra 10 percent. “For every watt of power you burn in the chip, you need about a watt of power to cool it as well.”
In terms of what OpenAI gets from these deals, Burr believes that the startup will save money on chips, since there’s “less margin” from making your own versus buying gear from NVIDIA. Plus, being able to produce custom silicon to tailor the work to their needs should see significant speed and performance gains on rival systems. Of course, the next biggest benefit is that OpenAI now has “diversity in supply,” rather than being reliant on one provider for all its needs. “Nobody wants a single supplier,” said Burr.
The Factory
Except, of course, OpenAI may be sourcing chips from a variety of its partners, but no matter what’s stamped on the silicon, it all comes from the same place. “I’d be very surprised if it wasn’t TSMC,” said Burr, “I’m pretty sure all of the AI chips out there use TSMC.” TSMC is short for Taiwan Semiconductor Manufacturing Company which, over the last decade, has blown past its major rivals to become the biggest (and in many cases only) source of bleeding-edge chips for the whole technology industry. Unlike historic rivals, which designed and manufactured their own hardware, TSMC is a pure play foundry, only building chips designed by others.
Interior at one of TSMC's Fabs Interior at one of TSMC's Fabs
Taiwan Semiconductor Manufacturing Co. Ltd.
Gil Luria is Managing Director at head of technology research at investment firm DA Davidson. He said that TSMC isn’t just a bottleneck for the western technology industry, but in fact is the "greatest single point of failure for the entire global economy.” Luria credits the company with an impressive expansion “considering it has had to ramp the production of GPUs tenfold over the last three years.” But said that, “in a catastrophic scenario where TSMC is not able to produce in Taiwan, the disruption would be significant.” And that won’t just affect the AI world, but “mobile handset sales as well as global car sales.”
TSMC supplanted Intel for a number of well-documented reasons, but the most relevant here is its embrace of Extreme Ultraviolet Lithography (EUV). It’s a technology that Intel had initially backed, but struggled to fully adopt, allowing TSMC to pick it up and run straight to the top. EUV produces the headline-grabbing chips used by pretty much everyone in the consumer electronics world. Apple, Qualcomm, NVIDIA, AMD (including the SOCs inside the PS5 and Xbox) all use TSMC chips. Even Intel has been using TSMC foundries for some consumer CPUs as it races to bridge to gulf in manufacturing between the two companies.
“TSMC is the current leader in advanced 3 nanometer (nm) process technologies,” said University of Pennsylvania Professor Benjamin C. Lee. The company’s only meaningful competitors are Intel and Samsung, neither of which pose a threat to its dominance at present. “Intel has been working for a very long time to build a foundry business,” he explained, “but has yet to perfect its interface.” Samsung is in a similar situation, but Professor Lee explained it “has been unable to attract enough customers to generate a profitable manufacturing business.”
Professor Lee said that TSMC, by comparison, has become so successful because of how good its chips are, and how easy it is for clients to build chips with its tools. “TSMC fabricates chips with high yield, which is to say more of its chips emerge from the fabrication process at expected performance and reliability.” Consequently, it should be no surprise that TSMC is a money making machine. In the second quarter of 2025 alone it reported a net profit of $12.8 billion USD. And in the following three months, TSMC posted net profits of $14.76 billion.
“TSMC’s secret sauce is its mastery of yield,” explained ARPU Intelligence, an analyst group that prefers to use the group name over individual attribution. “This expertise is the result of decades of accumulated process refinement [and] a deep institutional knowledge that cannot be replicated.” This deep institutional knowledge and ability to deliver high quality product creates a “powerful technical lock-in, since companies like Apple and NVIDIA design their chips specifically for TSMC’s unique manufacturing process … It’s not as simple as sending the [chip] design to another factory,” it added.
The downside, at least for the wider technology industry, is that TSMC is now a bottleneck that the whole industry has come to rely upon. In the company’s most recent financials, it said more than three quarters of its business comes from North American customers. And in a call with investors, Chairman and CEO C.C. Wei talked about the efforts the company has made to narrow the gap between the enormous demand and its constrained supply. While he was reticent to be specific, he did say that the company’s capacity is “very tight,” and would likely remain that way for the foreseeable future.
In fact, TSMC’s capacity is so tight that it’s already caused at least one major name a significant headache. Earlier this year, Reuters reported that NVIDIA canceled an order of its H20 AI chips after being informed the US would not permit them to be exported to China. Once the ban was lifted, however, NVIDIA was unable to find space in TSMC’s schedule, with the next available slot at least nine months later.
“TSMC has no room for error,” said ARPU Intelligence, “any minor disruption can halt production with no spare capacity to absorb the shock.” It cited the Hualien earthquake which struck Taiwan on April 3, 2024, and how it negatively impacted the number of wafers in production.
Naturally, TSMC is spending big to increase its production capacity for its customers, both in Taiwan and the US. Close to its home, construction on its A14 fab is expected to begin in the very near future, with the first chips due to be produced in 2028. That facility will harness TSMC’s A14 process node, producing 1.4 nm chips, which offer a speed boost over the 2nm silicon that's expected to arrive in consumer devices next year.
Image of TSMC's Arizona Campus Image of TSMC's Arizona Campus
Taiwan Semiconductor Manufacturing Co. Ltd.
Meanwhile, work continues apace on building out TSMC’s sprawling facility in Arizona, which broke ground in April 2021. As Reuters reported at the time, the first facility started operating in early 2025, producing 4 nm chips. Last week, NVIDIA and TSMC showed off the first Blackwell wafer produced at the Arizona plant ahead of domestic volume production.
Plans for the operation have grown over time, expanding from three facilities up to six to be built over the next decade. And while the initial outline called for the US facilities to remain several process generations behind Taiwan, that is also changing. In his recent investors call, Chairman and CEO C.C. Wei pledged to invest more in the US facility to bring it only one generation behind the Taiwanese facility.
No amount of investment from TSMC or catch-up from rivals like Samsung and Intel will solve the current bottleneck swiftly. It will take many years, if not decades, for the world to reduce its reliance on Taiwan for bleeding-edge manufacturing. TSMC's island remains the industry's weak point, and should something go wrong, the consequences could be dire indeed.
This article originally appeared on Engadget at https://www.engadget.com/computing/openais-recent-chip-deals-heap-more-pressure-on-tsmc-130000194.html?src=rss
