Why Advanced Chip Packaging Is the Linchpin in the AI Race Between the U.S. and China

TL;DR

• Taiwan Semiconductor Manufacturing Company (TSMC) is investing $100 billion in U.S.-based facilities.
  
• Advanced chip packaging, especially CoWoS, is pivotal to powering AI innovations like ChatGPT and Nvidia GPUs.
  
• The technology allows for denser, faster, and more energy-efficient chip layouts.
  
• U.S. aims to localize both chip fabrication and packaging to reduce dependency on Taiwan.
  
• This effort is vital to the U.S.-China AI rivalry, both strategically and economically.
  

TSMC’s Historic $100 Billion U.S. Investment

In a landmark move underscoring the escalating AI arms race, Taiwan Semiconductor Manufacturing Company (TSMC) has committed $100 billion to expand operations in the United States. This includes the development of two advanced packaging facilities in Arizona, strengthening U.S. technological autonomy and minimizing geopolitical risk linked to the Taiwan Strait.

The Arizona build-out is the largest foreign investment in U.S. history, demonstrating not only commercial interest but strategic urgency in securing the backbone of next-generation AI infrastructure.

Understanding Advanced Chip Packaging

At its core, chip packaging refers to the final stage of semiconductor manufacturing—encasing chips and connecting them to circuit boards. But advanced packaging takes this further, enabling multiple chips—GPUs, CPUs, and HBM (High Bandwidth Memory)—to be positioned closer together.

This architecture:

• Boosts performance
  
• Reduces latency
  
• Consumes less energy
  

A prime example is CoWoS (Chips-on-Wafer-on-Substrate), a packaging method invented by TSMC. It has become critical since the explosion of AI applications such as OpenAI’s ChatGPT, which require high-speed data processing across massive chip clusters.

“No one has pushed advanced packaging harder than me,” Nvidia CEO Jensen Huang said during Computex 2025 in Taipei.

Key Players in Advanced Packaging

The CoWoS Revolution: From Obscurity to Necessity

The CoWoS architecture wasn’t always popular. When TSMC engineer Chiang Shang-yi first proposed it in 2009, it faced internal skepticism due to high cost and limited demand. At one point, Chiang recalled having just a single client and being considered “a joke.”

But the AI revolution changed everything. CoWoS has since become a household term in Taiwan, with AMD CEO Lisa Su noting that “it’s the only place where everyone knows what CoWoS means.”

AI, Chips, and the U.S.-China Rivalry

The AI race between the U.S. and China has made chip technology a frontline battlefield. While the two nations recently agreed to a 90-day tariff truce, tensions remain high over export controls, particularly targeting China’s access to advanced semiconductors.

By investing in both fabrication and packaging capabilities on U.S. soil, America gains a vertically integrated chip supply chain, reducing dependency on Asia and enhancing national security.

According to Eric Chen, analyst at Digitimes Research, “It ensures that the U.S. has a complete supply chain from advanced manufacturing to advanced packaging, which benefits its AI competitiveness.”

Risk Diversification and Geopolitical Strategy

Right now, all CoWoS capacity is in Taiwan, making it a single point of failure in the global AI chip supply chain. As Dan Nystedt of TrioOrient put it, “Instead of having all eggs in one basket, CoWoS would be in Taiwan and also the U.S., and that makes you feel more safe and secure.”

The Arizona investment not only addresses that concern but also signals to China that the U.S. is hedging against possible conflict or trade embargoes involving Taiwan.

Why It Matters to AI Leaders

Companies like Apple, Nvidia, AMD, Qualcomm, and Broadcom rely on advanced packaging for performance-critical components in AI servers and data centers.

“The technology of packaging is very important to the future of computing,” said Nvidia’s Huang. “We now need to have very complicated advanced packaging to put many chips together into one giant chip.”

These firms are among TSMC’s top clients, and securing domestic capacity ensures supply chain resilience as AI demand soars.

The Long Game: Strategic Autonomy and Global Dominance

In the semiconductor domain, Moore’s Law is hitting physical limits. Advanced packaging provides a pathway to continue scaling performance without exponentially increasing costs or size.

This development also aligns with U.S. government initiatives like the CHIPS and Science Act, which provides incentives to companies establishing manufacturing bases in America.

As the next wave of AI technology rolls out—from generative models to robotics and edge AI—the ability to manufacture and package chips domestically will be as crucial as having the best algorithms.

Final Thoughts

The U.S.-China AI competition is no longer just about software or talent. It’s about hardware sovereignty—and advanced chip packaging is emerging as the decisive factor. With TSMC bringing its most critical processes to U.S. soil, the balance of power in the AI race may be shifting.