Modern economies rely heavily on semiconductor manufacturing. In recent years, innovation has fueled rapid advancements in everything from smartphones to supercomputers. The surging popularity of artificial intelligence (AI) is driving demand, positioning industry giants alongside Nvidia to potentially join the exclusive trillion-dollar club.
However, a new challenge shadows this era of AI-capable components: an unprecedented labor shortage in the electronic components industry. These industry titans, poised to offer the latest transformative AI solutions, are not immune to the impending labor crisis. AI could propel the electronic components industry to unparalleled growth over the next decade, but only if the global labor shortage doesn't derail this progress.
TSMC and Broadcom: Potential Next AI Trend Winners
One year ago, Nvidia became the newest member of the trillion-dollar company club. Membership in this elite group is highly selective. Before Nvidia, only Apple, Microsoft, Saudi Aramco, Alphabet, Amazon, Meta, and Tesla had surpassed a one-trillion-dollar market valuation. A year later, Nvidia remains the most recent addition.
Nvidia's dominance stems from its cutting-edge GPUs, which hold an estimated 80% share of the AI chip market. Nvidia even briefly surpassed Apple as the second-most valuable company in the U.S., reaching a market value exceeding $3 trillion. As Nvidia continues to reign supreme in AI, two additional chipmakers – TSMC and Broadcom – may become the next members of the coveted trillion-dollar club, fueled by the same insatiable demand for artificial intelligence.
TSMC, the world's largest semiconductor foundry, produces a staggering 60% of the world's semiconductors and a remarkable 90% of the world's most advanced chips. However, the company hasn't yet broken through the trillion-dollar barrier. Unlike Nvidia, most manufacturers outsource their chip designs to fabrication specialists like TSMC. Despite its popularity as a chip manufacturer, this hasn't propelled TSMC to trillion-dollar status -yet.
TSMC's expertise in chip manufacturing processes is applicable across a wide range of semiconductor applications, making the company less reliant on any one specific use case. As described by Yahoo Finance, TSMC's "never-ending march toward faster and more power-efficient computing drives demand for its manufacturing capacity."
TSMC specializes in contracting out its fabrication process, which has enabled the company to benefit from the recent boom in AI chip demand. According to Yahoo Finance, AI-related revenue is expected to grow for TSMC at an annual rate of 50% over the next five years, reaching 20% of its total business by 2028. While not as dramatic as Nvidia's gains, TSMC's steady progress suggests the company could reach $1 trillion within a few years. Currently, TSMC's market cap sits at $685 billion, meaning it needs to climb 46% to join the exclusive club.
Yahoo Finance also reports that chipmaking giant Broadcom is another contender to become the next trillion-dollar chipmaker. During the first fiscal quarter of 2024, Broadcom's AI revenue quadrupled year-over-year. Broadcom offers AI chips that "focus on overcoming the networking challenges involved in moving around large amounts of data..." (Broadcom) In addition to its latest AI products, Broadcom's software arm recently acquired VMWare, "which cements its position in virtualization and mainframe software, complementing security software." (Broadcom)
Similar to TSMC, Broadcom's current market cap is $650 billion. With strong growth expected over the next several years, the company is well-positioned to join the $1 trillion club. Both Broadcom and TSMC boast diverse portfolios, allowing them to benefit from the recent AI boom, while their wider range of offerings attracts a broader audience compared to solely offering AI services.
CHIPS Act Faces Talent Shortage Challenges
The CHIPS and Science Act represents a significant step towards revitalizing the United States semiconductor industry. Since its passage, the U.S. Commerce Department announced "nearly $30 billion in grants and an additional $25 billion in loans" alongside substantial tax breaks. In the following years, a total of $450 billion in private investments were used to build new factories across the United States.
Unfortunately, even the best-laid plans can encounter obstacles. Industry experts warn Fortune that the semiconductor labor shortage is hindering the latest phase of the CHIPS Act. Factories lack sufficient qualified staff to operate these facilities, a challenge TSMC faced at its new Arizona facilities. The company was forced to bring in trained staff from its other plants in Taiwan to train new workers and fill existing gaps.
"Workforce is a really, really important potential bottleneck," an anonymous CHIPS Act official confided in Fortune. "We have some of the world's greatest talent in this country. But because we have dramatically reduced our footprint in semiconductor manufacturing over the past 35 years, we have lost many of those skills, and we need to reinvigorate that."
Due to past trends of outsourcing skilled chipmaking labor, the U.S. currently faces a shortage of roughly 67,000 qualified workers. To address this gap quickly, various organizations, including federal officials, nonprofits, and educators, are collaborating on solutions. This problem isn't unique to the United States.
China, another country heavily invested in boosting domestic semiconductor manufacturing, faced an estimated shortage of 200,000 workers in 2023. Even the chipmaking giant Taiwan needs more skilled labor to fill new facilities.
"You can't run an economy like ours without having a solid manufacturing sector," Mike Russo, President and CEO of the National Institute for Innovation & Technology (NIIT), asserted to Fortune. "It's a foundational component of innovation. If you want to lead, you have to innovate."
According to a 2023 report by Intel on the semiconductor labor shortage, "semiconductor companies like Intel have relied on community college students to fill a large portion of technician jobs at [factories]... The emphasis on technician training waned over the years as companies invested more in science, technology, engineering, and math (STEM) education and research funding for bachelor, master and Ph.D. programs."
Industry leaders and chipmaking giants are working together to fund new programs that jumpstart career paths in the field. The goal is to showcase these positions as secure and sustainable, with strong government support to ensure long-term job security. The more successful the industry is in demonstrating that becoming a semiconductor fab technician is a viable career path, the more prospective workers will be interested in acquiring the necessary skills.
"It's going to be years of hard work on the ground—building programs, building connections, building stakeholder groups, getting middle schoolers excited about semiconductors," stated the CHIPS Act official. "That's what it's going to take. And we're going to get there, but it will take a lot of work."
The future of the chipmaking industry hinges on its ability to navigate the dual forces of booming AI demand and a critical labor shortage. While the potential for trillion-dollar valuations exists for TSMC and Broadcom, overcoming the talent gap will be vital to achieving this ambitious goal.
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