Taiwanese chip giant TSMC may raise prices for Nvidia as AI booms

TSMC CEO CC Wei (left) calls Nvidia CEO Jensen Huang (right) 'three trillion men'.
Sam Yeh/AFP/Getty Images, Sylvain Vlasak/Getty Images for The New York Times
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  • TSMC CEO hints at raising prices for Nvidia's AI chip products
  • Nvidia's market value recently hit $3 trillion, fueling discussions about the price of its AI chips.
  • TSMC plans to raise prices for production outside Taiwan amid geopolitical concerns.

Nvidia's meteoric rise on the back of the AI ​​boom has made it one of the world's most valuable companies and boosted CEO Jensen Huang's fortune.

Now, key supplier Taiwan Semiconductor Manufacturing Company, or TSMC, wants to join the hype.

“I complained to Nvidia CEO Jensen Huang — 'the three trillion man' — that his products are too expensive,” TSMC CEO CCV said last week, according to Nikkei.

Wei was referring to Nvidia's market value, which surpassed $3 trillion last week. The AI ​​chipmaker delivered another blowout earnings report last month, with both first-quarter revenue and earnings beating Wall Street estimates.

Wei added that Nvidia's products are “definitely really valuable, but I'm also thinking about showing our value.”

Wei's comments sparked speculation that TSMC — the world's largest contract chipmaker — is considering a price hike. TSMC produces, according to some estimates, 90% of the world is developed processor chips.

TSMC tried to play down market speculation last week, telling local media that the company's pricing has always been “strategic rather than opportunity-based.”

In April, an analyst asked if TSMC is reaping the benefits of the AI ​​boom and how the CEO thinks about pricing.

“We're happy that our customers are doing well. And if customers do well, TSMC does well,” Wei replied.

Nvidia's Huang has no objection to TSMC's price hikes.

TSMC's contribution to the industry is “really great,” he told reporters in Taiwan last week.

“The price increase is commensurate with the value they provide. I'm very happy to see them succeed,” Huang said.

Analysts at Morgan Stanley wrote last week that Nvidia's management may recognize TSMC's reliability.

“We believe that if NVIDIA accepts the price increase, other key AI niche customers may follow,” the analysts wrote in a note.

They estimate that Nvidia will account for 10% of TSMC's 2024 revenue.

TSMC has already signaled a price hike for production outside of Taiwan.

This isn't the first time TSMC has hinted at a price hike this year.

In April, Wei said the company intended to charge customers a higher price if they wanted to make their chips outside of Taiwan.

If my customer requests to be in a certain region, of course, TSMC and the customer have to share the additional cost,” the CEO said on TSMC's first-quarter earnings call. “Today's fragmented globalization In the environment, the costs will be higher for everyone. including TSMC, our customers, our competitors, and the entire semiconductor industry.”

Taiwan also raised electricity rates for large industrial customers in April, which will put pressure on TSMC's bottom line. He said that inflation and electricity prices are increasing.

“We expect our customers to share some higher prices with us, and we have already started our discussions with our customers,” he said, detailing the pricing strategy on the earnings call. said refusing to tell.

Used in everything from data centers to smartphones, chip production is now a geopolitical concern, as the world's chip production is concentrated in the independently-governed Taiwan — which China claims as its territory. claims

There are fears that a Chinese attack on Taiwan could negatively impact the global economy and allow Beijing to seize TSMC's facilities.

TSMC is diversifying production. With new facilities in Arizona, Japan, And Germany.

Wei said last week that TSMC had discussed moving some chip plants out of Taiwan, but that it was impossible to move all production off the island.

TSMC shares in Taiwan closed down 1.7% at 879 New Taiwan dollars on Friday and are up 48% year-to-date. Taiwan's market is closed on Monday for a public holiday.

Shares of Nvidia closed down 0.1% at $1,208.88 on Friday, up more than 140% year-to-date — ahead of a 10-for-1 stock split after the closing bell.

TSMC did not immediately respond to Business Insider's request for comment.

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