Unlike fabrication capacity, packaging has struggled to meet the high demand for chips, leading TSMC, the world's largest contract chip manufacturer, to dedicate significant resources to it.

TSMC's latest earnings call also focused on packaging, with the firm redefining its market to include higher revenues from assembling chips as well as manufacturing them.

According to the reports, NVIDIA's CEO Jensen Huang visited TSMC's headquarters earlier this year during his visit to Taiwan. He also met TSMC's founder, Dr. Morris Chang, and the firm's former chairman. Sources say his visit was notable as it led Huang to request that TSMC set up a dedicated packaging line for NVIDIA's GPUs.

The report shares a few details of the encounter but highlights the tense discussions between Huang and TSMC's managers. The managers asked Huang a series of questions about the request. According to the sources, the talks were unfruitful, and you could cut the atmosphere in the meeting room with a knife.

Packaging constraints were among the first challenges to the AI revolution that analysts worried about during the early days of the current hype in 2023. TSMC has struggled to meet the demand for its packaging products, with reports claiming that the firm has reserved its entire packaging capacity for NVIDIA and its smaller rival AMD.

The rise of packaging in the semiconductor value chain was evident during TSMC's second-quarter earnings call.

At the event, CEO Dr. C.C. Wei began his opening remarks by sharing that his firm is upgrading its definition of the foundry industry to Foundry 2.0. Unlike pure chip fabrication, Dr. Wei's upgraded definition includes "packaging, testing, mask-making, and others, and all IDM excluding memory manufacturing."

, Wei added during the call that "TSMC will only focus on the most advanced back-end technologies, which help our customers in leading-edge products."

Foundry 2.0 adds $100 billion to the total size of the semiconductor industry in 2023, encompassing $250 billion of revenue opportunities, outlined the TSMC executive. He said that TSMC held 28 per cent of this market in 2023 and plans to grow this share this year. CoWoS packaging capacity, which includes the final stage processes of an NVIDIA chip post-fabrication, is tight this year and will only start to ease in 2026, shared Wei.

However, the growth in packaging demand has also improved TSMC's packaging margins, which were previously lower than the company average.