AI chip demand continues to strain big tech supply chains

As reported by Reuters, Broadcom said TSMC (Taiwan Semiconductor Manufacturing Company) continues to be confronted by soaring demand for AI chips, leading to strained production.

TSMC, which is one of the biggest advanced AI chip producers, first said capacity was a challenge in January, as the AI infrastructure boom continued to impact advanced production lines. With customers including the likes of Nvidia and Apple, the company has continually said it is working to close the gap between supply and demand.

“We are seeing that TSMC is hitting (production capacity) limits,” Natarajan Ramachandran, director of product marketing in Broadcom’s Physical Layer Products division, told reporters on Tuesday, according to Reuters. He also said he would have previously described TSMC’s capacity as “infinite” until a few years ago.

He added: “They will be increasing the capacity to 2027, but that has become a bottleneck, or that has kind of choked the supply chain in 2026.”

Ramachandran said the shortages go beyond semiconductors and are impacting several adjacent supply chains, including PCBs used in optical transceivers and circuit board bottlenecks.

“Even though there are multiple suppliers in the industry today … there is definitely a supply constraint in the laser space,” he said, as reported by Reuters.

Supply chains within the technology world have faced plenty of challenges in recent years, as AI has become more dominant worldwide. In particular, the rising popularity of agentic AI systems has led to supply strains, as these systems require more processing power.

It was previously discovered that such constraints had impacted the likes of Intel and AMD, with prices going up on Intel’s server products by 10% and delivery lead times being delayed for AMD.

AMD told Reuters at the time it remained confident in its ability to meet customer demand globally based on its “strong supplier agreements and supply chain” – which includes its TSMC partnership.

This, alongside increasing CPU shortages, could lead to continued challenges for AI companies and manufacturers. Many customers are now entering long-term agreements with suppliers to secure capacity commitments for several years to ensure security of supply.

Likewise, the ongoing Iran-US war is sure to keep impacting supply chains, raising questions over a so-called ‘infrastructure war’.

The news from Broadcom comes shortly after Broadcom announced an OpenAI partnership to build 10 gigawatts of custom AI accelerators. OpenAI will design the chips and systems, while Broadcom will help develop and deploy them – hoping to pursue more advanced AI models.

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