Morgan Stanley AI Supply Chain Tracking: CoWoS Production Capacity, Capital Expenditure, H20 Shipments Surge, AI Demand Accelerates Release

Morgan Stanley released its latest research report, stating that there is a strong and continuous demand for artificial intelligence (AI), with the entire industry chain showing accelerated expansion from capital expenditures of cloud service providers to capacity layout of chip manufacturers. Against this background, the bank recommended to "hold" NVIDIA Corporation (NVDA.US), Broadcom Inc. (AVGO.US), Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US), Samsung (SSNLF.US), Alchip, MediaTek, Aspeed, ATEYY.US, and KYEC. Continuous explosive AI demand, tech giants increase investment The report pointed out that as a core indicator of AI demand, the capital expenditures and token processing volume of cloud service providers have performed well. Currently, Alphabet Inc. Class C (GOOGL.US) has raised its capital expenditure budget for 2025 from $75 billion to $85 billion, mainly for server investment and data center construction, and is expected to further accelerate investment in 2026. Of particular note is that Alphabet Inc. Class C's monthly token processing volume increased from 480 trillion in May to 980 trillion, highlighting the rapid growth in AI inference demand. Morgan Stanley thus maintained its "attractive" rating for the semiconductor industry in the United States and Greater China, believing that the resilience of AI demand will continue to support industry growth. Restart of H20 chip shipments, China market the focus Morgan Stanley also pointed out that the previously highly anticipated H20 chip shipments are expected to resume. From the perspective of the semiconductor supply chain in Taiwan, production of H20 chips is accelerating, with additional capacity planned to reach one million chips. The production plan for 200,000 B40 chips in 2025 remains unchanged. Currently, Chinese cloud service providers such as Tencent (00700) have shown interest in purchasing H20, but there has been no clear feedback for B40. In addition, orders for AMD's MI308 chips for the Chinese market are expected to become regular, and the bank has raised its forecast for the quantity of CoWoS-S packaging for Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR in 2025 from 50,000 to 60,000. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR CoWoS capacity allocation: the core engine for industry growth in 2026 Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's 2026 CoWoS packaging capacity plan shows that the global cloud AI chip industry will see a 40%-50% growth. Specifically, it is estimated that NVIDIA Corporation's CoWoS orders in 2026 will reach 510,000 pieces, equivalent to about 5.4 million chips, a year-on-year increase of 31%, with Rubin chips accounting for 2.4 million chips; AMD's MI355 and MI400 series chips are expected to account for 80,000 pieces of capacity; Broadcom Inc. has reserved 145,000 capacity for Alphabet Inc. Class C TPU, Meta, and OpenAI, and has also reserved some capacity in ASE/SPIL for Alphabet Inc. Class C TPU. Other companies in the industry chain are also accelerating their layout: due to the rapid increase in shipments of Amazon.com, Inc.'s AWS Trainium3, Morgan Stanley has raised its CoWoS order forecast for Alchip from 40,000 to 50,000 pieces; the bank expects Marvell Technology, Inc. to reserve 30,000 pieces of capacity for AWS Trainium2.5 and Microsoft Corporation's Maia300 respectively; MediaTek is expected to start CoWoS orders in the second half of 2026, with an initial scale of about 20,000 pieces. Comprehensive expansion of AI supply chain, strong long-term growth momentum Looking at the broader supply chain, AI chip-related wafer revenue is expected to reach $14.5 billion in 2025, with HBM (High Bandwidth Memory) demand close to double that of 2024, with NVIDIA Corporation still the largest consumer. Morgan Stanley predicts that the operating cash flow for the top four cloud giants in the United States (Amazon.com, Inc., Alphabet Inc. Class C, Microsoft Corporation, Meta) in 2025 will reach $550 billion, providing solid support for continued AI data center investments, with AI capital expenditure to EBITDA ratio stabilizing at around 50%, and depreciation as a percentage of total spending may increase to 10%-14%. Morgan Stanley also emphasized that the expansion of the AI supply chain is not only reflected in the chip and packaging sectors, but also in GPU to ASIC leasing prices and corporate revenue structures, which also confirm the industry's heat. Revenue from data center semiconductors for NVIDIA Corporation and AMD continue to grow, with Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's AI-related revenue expected to reach 25% in 2025, significantly higher than the approximately 15% level in 2024. Overall, the bank believes that Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR's expansion of CoWoS capacity, advancements in HBM technology, and the increase in capital expenditures of tech giants will be the main drivers of the industry.