Following NVIDIA CEO Jensen Huang's high-profile visit to Taiwan Semiconductor Manufacturing (TSM) to secure more chip supply, reports suggest TSMC is considering expanding its 3nm wafer production capacity beyond initial projections.

According to a Morgan Stanley research note, TSMC may add 20,000 wafers per month to its 3nm production capacity. The bank had previously estimated TSMC's 3nm output at 140,000–150,000 wafers per month by 2026, but the latest data indicates this could rise to 160,000–170,000 wafers.

Huang publicly stated during his visit that NVIDIA's business remains "exceptionally strong" and urged TSMC to increase supply. If the expansion proceeds, it could significantly impact TSMC's capital expenditure (capex). Analysts estimate the additional capacity would require $5–7 billion in extra spending, potentially pushing TSMC's total 2026 capex to $48–50 billion, up from the current projection of $43 billion.

This potential capex hike is seen as a positive catalyst for the global semiconductor equipment industry. The move underscores the persistent demand for AI chips and highlights a shift in supply chain bottlenecks—from advanced packaging (CoWoS) to front-end wafer production and critical materials like ABF substrates.

**3nm Capacity Crunch: TSMC May Repurpose Older Production Lines** With NVIDIA, AMD, and Alchip aggressively placing orders, TSMC's 3nm capacity is under increasing pressure. While TSMC initially aimed to maintain high utilization rates for its advanced nodes, the surge in demand from AI clients may have prompted a rethink.

TSMC management has indicated that all new cleanroom space in Taiwan will be allocated to 2nm expansion, meaning 3nm capacity increases must come from existing facilities. Morgan Stanley reports that TSMC may relocate 22/28nm equipment from its Fab15 to free up space for additional 3nm lines, with the displaced tools potentially earmarked for future European operations.

**Higher Capex to Benefit Equipment Suppliers** Analyst Charlie Chan estimates that every 1,000 wafers of 3nm capacity requires $300 million in capex. The proposed 20,000-wafer expansion could thus necessitate $5–7 billion in additional investment, reinforcing TSMC's position as a key driver of semiconductor equipment demand. Morgan Stanley maintains "Overweight" ratings on TSMC, KYEC, and ASE Group.

**Front-End Wafer Supply Emerges as Critical Constraint** While CoWoS packaging was previously seen as the primary bottleneck, the report suggests front-end wafer availability—alongside ABF substrates and glass cores—is now the limiting factor. Alchip has also highlighted 3nm wafer shortages, indicating that even with sufficient packaging capacity, chip output remains constrained by wafer supply.

**AI Demand Fuels Expansion Plans** The push for additional capacity stems from insatiable demand from AI leaders like NVIDIA. Huang emphasized TSMC's pivotal role in NVIDIA's growth, stating, "Without TSMC, there would be no NVIDIA today."

NVIDIA and another major U.S. client are expected to dominate TSMC's 3nm demand through 2025 and beyond. By 2025, AI-related revenue could account for 25% of TSMC's total sales. From Tesla's AI5 chip to cloud providers' server investments, all signs point to sustained demand for cutting-edge nodes, ensuring the semiconductor industry's capex race continues.