Comment by Traster

I think this article doesn't really engage with why TSMC is in the position it is in. It is in the position it's in due to 2 key reasons. The first is scale, in order to make the R&D worth it you need to sell a hell of a lot of chips. So you need scale in order for the economics to work. One of the things a lot of people point to in the downfall of Intel is they missed mobile and that just cut the legs out of their scale.

The second reason is the opposite though. The industry is cyclical. If you invest a tonne now, and that investment comes to fruition just as you hit the bottom of a cycle you're just going to go bankrupt. You'll have a tonne of capacity, no demand and businesses are designed to go bankrupt in exactly that way. You only need a small surplus of demand to skyrocket prices, and you only need a small deficit of demand to turn into a fire sale.

Let's put it this way - Ben points at a graph and says "Look, here's where ChatGPT got released - and the YoY CapEx went down!". Yes, that is exactly the cyclical nature. It takes a long term to sort the logistics for this industry, so if you see demand in early 2023, that's going to turn into CapEx in 2025 - and it did, a 35% increase in CapEx YoY is yuuuge.

The problem is that if you say competition is the answer what you're really saying is you want one player in the industry to chase a pro-cyclical demand cycle and that will blow them up. The result of this strategy is just to sacrifice the leading players each cycle.

The logical answer is actually, if Google wants TSMC to push CapEx into a bubble, Google should under-write it. Judge where you expect demand to be and hand over cash to buy the chips now. TSMC will build it. If you guarantee revenue in 2029, TSMC will absolutely guarantee you capacity. But Google doesn't beleive it, and they certainly won't pay up front for it. No, what you'll get is special purpose vehicles that look a lot like the big tech companies guaranteeing projects - in a way that doesn't show up on their balance sheets now - but turn out not to be guarantees if it turns sideways. And TSMC can't afford that counter party risk.