Morgan Stanley Analyzes TSMC: AMD and Broadcom Decreasing CoWoS-S Capacity Amid Weaker Demand, Paving the Way for NVIDIA to Transition to CoWoS-L for GB300A Production

This article does not constitute investment advice. The author does not hold any positions in the specified stocks.

Clarifying the Current State of TSMC and NVIDIA’s Blackwell Chips

Recent developments surrounding Taiwan Semiconductor Manufacturing Company (TSMC) have stirred uncertainty, particularly concerning its distinctive wafer-level system integration platform, known as CoWoS (Chip-on-Wafer-on-Substrate). Fortunately, analysts at Morgan Stanley have provided valuable insights that illuminate the situation and its potential ramifications for NVIDIA’s product deployment.

Reports from The Information indicate that NVIDIA’s latest Blackwell AI servers are grappling with significant overheating and operational glitches. These complications appear to have prompted major clients such as Microsoft, Google, and Meta to reduce their Blackwell orders. The issues seem to be linked to the design of the chips, specifically how they connect—pointing to a potential shortcoming in TSMC’s CoWoS technology, which allows for the integration of several chips into a single package.

This news understandably unsettled investors, especially in light of NVIDIA’s earlier assurances in 2024 that minor adjustments to the photomask—the blueprint used in chip wafer manufacturing—had successfully resolved initial performance issues experienced by Blackwell.

However, DigiTimes later alleviated investor concerns by citing its own internal sources at TSMC, which stated that the company has chosen to maintain its existing Blackwell orders, effectively contradicting claims of volume reductions from NVIDIA’s prominent clients.

Morgan Stanley’s view on TSMC’s CoWoS order fluctuations highlights that some customers, like $AMD and Broadcom, are releasing CoWoS-S capacity due to weaker demand. $NVDA, however, has stepped in and requested $TSM to convert this capacity to CoWoS-L for GB300A production.… https://t.co/jneCfh0goi

— Wall St Engine (@wallstengine) January 15, 2025

Insights from Morgan Stanley

Following their recent evaluation, Morgan Stanley has shed further light on this issue. They noted that several companies, including AMD and Broadcom, are opting to release their CoWoS-S capacity due to diminished demand. This aligns with a recent note from Nomura, which suggests that NVIDIA might cut its CoWoS-S orders with TSMC and UMC by as much as 80% in 2025, largely due to a downturn in demand for Hopper platform chips.

It is important to highlight that NVIDIA’s Hopper chips utilize TSMC’s CoWoS-S technology, whereas the newer Blackwell chips are based on the more advanced CoWoS-L packaging technology. As a strategic maneuver, Morgan Stanley pointed out that NVIDIA has asked TSMC to convert the canceled CoWoS-S capacity into CoWoS-L for its GB300A production.

“Despite these shifts, TSMC’s overall CoWoS demand remains steady, with a slight potential increase in GB300A production later this year.”

This statement implies that The Information’s report captured some elements of the truth; order cancellations indeed occurred at TSMC. However, as Morgan Stanley clarified, these cancelations affect only CoWoS-S technology orders, while NVIDIA’s Blackwell orders are likely intact.

For those interested in the evolving landscape of semiconductor manufacturing, staying informed on these developments is crucial. The dynamics of demand and technology integration will continue to shape the future of companies like NVIDIA and TSMC as they navigate these challenges.

Source&Images