What is the primary risk in the AI surge that nearly no one is factoring in?
Nvidia (NASDAQ:NVDA) relies almost solely on a single foundry, TSMC, for its most cutting-edge and lucrative chips. These chips are mainly manufactured in Taiwan, a location highly susceptible to geopolitical issues.
What makes this so perilous?
Nvidia is currently valued at $4.3 trillion – having briefly reached about $5 trillion earlier this year – yet the H100, H200, and Blackwell products all depend on TSMC’s cutting-edge facilities in Taiwan. The island accounts for over 90% of the world’s advanced chips, and 2025 has seen a surge in Chinese military exercises, pressure, and instability — intensifying that single point of failure.
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Let that resonate: the entire AI surge hinges on one location on the map.
Isn’t this an issue for everyone, not just Nvidia?
Absolutely. AMD, Qualcomm, Broadcom, and nearly all fabless companies depend on the same supply networks, although Nvidia’s emphasis on top-tier chips makes it more reliant on Taiwan’s advanced facilities compared to other players that are more diversified across older nodes, alternative foundries, and less packaging-focused products. In summary, this is the single point of failure for the entire Magnificent 7 AI expansion.
How Dependent Is TSMC on Taiwan?
Over 90% of TSMC’s wafer capacity remains in Taiwan. Taiwan accommodates over 20 fabs, including advanced facilities like Fab 18 in Tainan, which boasts a capacity of over 1 million wafers per month and uses state-of-the-art 5nm and 3nm processes. While the company is broadening its operations in the U.S., Japan, and Germany, its most advanced nodes – which Nvidia requires – are staying home. The inertia is significant, mainly due to the immense challenge of recreating such an advanced ecosystem outside Taiwan. TSMC has committed roughly $160 billion for U.S. fabs, but initiating advanced nodes on foreign land is a lengthy process. Yield, volume, engineering talent – none of these can scale instantly. Ironically, the U.S. CHIPS Act is actually predicted to increase near-term reliance because export limitations compel more cutting-edge operations to stay in Taiwan.
How Vulnerable Is Nvidia?
Nvidia acquires 100% of its top-tier GPUs from TSMC. There is no secondary source for 3-nm or 2-nm class production at scale until 2027, at the earliest. Additionally, the packaging story is just as concentrated. Chip-on-Wafer-on-Substrate, the sophisticated packaging that enables these GPUs, is predominantly situated in Taiwan as well. TSMC’s CoWoS (Chip-on-Wafer-on-Substrate) packaging is crucial for Nvidia’s premium AI chips, and the capacity for it is wholly based in Taiwan. It furnishes the performance and bandwidth these high-end GPUs require, which explains Nvidia’s heavy reliance on it. It’s concentration in its purest form.
Geopolitical Risk: Still Underappreciated
Tensions in the Taiwan Strait are at their highest in decades. The year 2025 has already experienced more frequent and extensive military exercises, heightened diplomatic pressure, and escalating cross-strait tensions. In a worst-case scenario, China wouldn’t necessarily require a full invasion – even a limited blockade could suspend TSMC exports overnight. A direct confrontation would immediately halt over 90% of the world’s leading-edge chip production, paralyzing global AI computing and crippling the entire technology supply chain.
If TSMC ceases operations for a while, who will fill the gap?
Realistically, at the present time, there is no one that can replace TSMC. At best, a few competitors might handle slightly less advanced tasks.
- Samsung is approximately two years behind in leading-edge logic technology and faces challenges with the yield consistency that Nvidia necessitates.
- Intel is still endeavoring to stabilize its latest nodes and is far from reaching TSMC’s N2 scale.
- China’s SMIC is restricted by sanctions to 7 nm technology without a CoWoS counterpart. Considering the Taiwan-China dynamics, Nvidia utilizing a mainland foundry is likely infeasible.
- Global supply of AI training chips would drop by over 80% overnight.
There is no backup global system for advanced-node manufacturing.
Valuation Math: What Happens To Nvidia Stock In A Disruption?
Nvidia shares trade at around 43x forward earnings, a ratio that presumes smooth, risk-free supply.
Here’s the calculation if disruptions occur:
- Nvidia is projected to generate around $300 billion in revenue for the next fiscal year.
- A disruption lasting six months could reduce that revenue by half, bringing it to approximately $150 billion.
- With net margins near 50%, this would lead to a $75 billion decrease in earnings.
The effect on valuation could be significantly more severe. Why? Because earnings don’t simply get slashed – the entire multiple compresses. A supply shock compels investors to reassess Nvidia as a company facing tangible geopolitical risks. A geopolitical premium could become a permanent aspect of semiconductor valuations.
If the World De-Risks, Who Gains?
A global re-shoring trend would result in new beneficiaries.
- Intel receives another opportunity because the world suddenly requires every viable fab available. Intel’s focus within the U.S. is a significant advantage.
- Samsung stands to gain from the urgency despite being behind.
- ASML, Applied Materials are key suppliers in chip fabrication and win regardless of location – any new fab necessitates tools.
- U.S., Japan, and Europe will become long-term winners due to supply-chain diversification.
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