AI Chips Bring Billions in Revenue to the Packaging Sector

The global race to build AI infrastructure is pouring billions of dollars into advanced chip packaging. This part of chipmaking long drew little attention, but it has now become a key bottleneck in producing the world’s most powerful processors, Reuters reports.

Demand for AI chips is outpacing existing packaging capacity. Companies such as Nvidia and AMD are therefore expanding partnerships with lesser-known manufacturers in Taiwan, and equipment makers are developing new tools.

Former Intel CEO Pat Gelsinger believes advanced packaging could eventually make up half of a chip product’s value. He says some of today’s graphics and central processors combine 10 to 20 chips in a single package. Yole Group forecasts that in 2026 revenue from advanced packaging will exceed that of conventional packaging for the first time. Capital spending on the technology is expected to reach about $28 billion.

TSMC leads, but capacity is short

Taiwan’s TSMC, the world’s largest contract chipmaker, leads in CoWoS (chip-on-wafer-on-substrate), the most sophisticated packaging technology. CoWoS joins processor and memory chips on a shared base so they can work together at high speed. Nvidia, AMD, Broadcom and cloud companies that design their own chips all use it.

TSMC’s capacity is limited, however, so chip designers are looking for other suppliers. According to an industry source, Nvidia is providing billions of dollars to expand CoWoS capacity at SPIL, a unit of ASE Technology. Nvidia did not comment, and ASE said it does not comment on market rumours.

The search for alternatives

Taiwan’s Powertech Technology (PTI) is betting on panel-level packaging. This approach uses large rectangular panels instead of round silicon wafers, which fit more chips and waste less material. Chairman DK Tsai said everyone is looking for a solution outside TSMC. PTI is working on the technology with AMD and Broadcom. It plans to invest $400 million in a joint facility with Broadcom in Singapore, where production could begin in 2028.

TSMC is also developing its own panel technology, CoPoS (chip-on-panel-on-substrate). In April the company said it had built a pilot line, but it expects mass production to start only in a few years.

AMD has announced more than $10 billion of investment in Taiwan’s semiconductor industry, including partnerships with ASE, SPIL and Powertech. AMD CEO Lisa Su called TSMC an incredible partner but acknowledged that the industry needs more capacity overall.

Equipment makers join the race

The packaging boom is also opening a new market for equipment makers. Seiji Nakama, president of Tokyo Electron’s Taiwan unit, said advanced packaging is growing faster than the overall chip equipment market, though it is still smaller. Applied Materials vice president Sree Kesapragada expects the market to expand significantly within three to five years.