The global expansion of artificial intelligence infrastructure is driving substantial investment in advanced semiconductor packaging, transforming a traditionally less prominent manufacturing process into a critical constraint for high-performance chip production.

As demand for AI processors exceeds available packaging capacity, major chip designers and manufacturers are expanding production capabilities and exploring alternative technologies.

Former Intel CEO Pat Gelsinger, now a partner at Playground Global, described the shift as a fundamental change in the industry’s priorities. He estimated that advanced packaging could eventually represent as much as half the value of a chip product.

Modern graphics processing units and central processing units can integrate more than 10 separate chips, with some configurations containing as many as 20. These components must be connected efficiently to operate as a high-performance system.

Research firm Yole Group forecasts that revenue from advanced packaging will exceed revenue from traditional packaging methods for the first time in 2026. Capital expenditure on the technology is expected to approach $28 billion.

TSMC Dominates Advanced Packaging but Capacity Is Tight

Taiwan Semiconductor Manufacturing Company (TSMC) remains the dominant supplier of sophisticated advanced packaging technologies, particularly chip-on-wafer-on-substrate, known as CoWoS.

The process connects separate silicon components, including processors and memory chips, on a shared substrate. This enables faster communication between components and is widely used by Nvidia, AMD and Broadcom, as well as cloud companies developing their own AI processors.

However, capacity constraints at TSMC are encouraging chip designers to diversify their supply chains.

Nvidia is providing billions of dollars in financing to support CoWoS packaging expansion at Siliconware Precision Industries (SPIL), a subsidiary of Taiwan’s ASE Technology, according to an industry executive familiar with the matter.

The funding is intended to support additional factory space and equipment. Nvidia did not respond to a request for comment, while ASE declined to comment on market rumours involving its customers.

The reported arrangement illustrates how demand for advanced packaging is prompting major chip companies to support capacity expansion beyond their traditional manufacturing relationships.

Powertech Develops an Alternative Packaging Approach

TSMC’s capacity limitations are creating opportunities for smaller semiconductor suppliers, including Taiwan’s Powertech Technology, also known as PTI.

The company is developing panel-level packaging, which uses larger rectangular panels rather than conventional round silicon wafers as the packaging platform.

The approach could accommodate more chips during each production run while reducing material waste, particularly as AI processors become larger and more complex.

PTI is working with AMD and Broadcom to demonstrate the technology’s suitability for advanced AI and high-performance computing packages.

Powertech Chairman D.K. Tsai has emphasized that customers are seeking alternatives to relying entirely on TSMC. Senior Vice President Jim Lin has also identified production capacity as the industry’s immediate priority.

The company plans to invest $400 million in an advanced packaging joint venture with Broadcom in Singapore. Production could begin in 2028.

TSMC and AMD Expand Their Advanced Packaging Commitments

TSMC is also developing a panel-based technology called chip-on-panel-on-substrate, or CoPoS.

The company said in April that it had established a pilot production line and expected manufacturing to begin within a couple of years. However, CoWoS remains its primary technology for AI packaging.

AMD has announced more than $10 billion in investments across Taiwan’s semiconductor industry, including partnerships with ASE, SPIL and Powertech involving advanced packaging.

AMD CEO Lisa Su acknowledged the importance of expanding packaging capacity, describing CoWoS and advanced packaging as essential to the company’s future high-performance computing business.

Microsoft Azure hardware chief Rani Borkar also identified reduced material waste as a potential advantage of panel-level packaging for larger AI chips. However, Microsoft has not decided whether or when it will adopt the technology.

Semiconductor Equipment Manufacturers Enter the Expansion Cycle

The growing packaging market is creating additional opportunities for semiconductor equipment manufacturers.

Historically, equipment companies concentrated on earlier manufacturing stages, when electronic circuitry is constructed on silicon wafers. Advanced packaging requires a different set of processes and tools to combine processors, memory and other components into finished high-performance units.

Seiji Nakama, president of Tokyo Electron Taiwan, said advanced packaging was growing considerably faster than the broader semiconductor equipment market, although it remained smaller in absolute terms.

An official at Applied Materials also expects the advanced packaging market, including panel-level technology, to expand significantly over the next three to five years.

Sree Kesapragada, a vice president at Applied Materials, characterized the opportunity as near-term rather than a development that remains a decade or more away.

What Investors Should Watch Next

Advanced packaging is becoming an increasingly important component of the AI semiconductor supply chain. The expected growth in industry investment, TSMC’s capacity constraints and the development of panel-level alternatives could reshape competitive relationships among chipmakers, packaging specialists and equipment suppliers.

Investors will be watching the commercial viability of panel-level packaging, the expansion of CoWoS capacity and the progress of TSMC’s CoPoS development. The planned Singapore joint venture between Powertech and Broadcom, alongside AMD’s investments in Taiwan, will provide further indicators of how quickly alternative capacity can enter the market.

The ability to deliver larger and more complex packages efficiently could become a defining factor in the next phase of AI processor production.