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TODAY'S LEAD STORY

The "bottleneck" in AI chips has shifted—what TSMC's record sales tell us.

This article analyzes TSMC's June monthly sales, announced on July 13th (up 67.9% year-on-year, a record high). It examines the reasons behind breaking the pattern of seasonal June sales declines that had continued for four consecutive years, the shift in the bottleneck from the sold-out N3 process to the advanced packaging technology CoWoS, increased production investments at Chiayi Science Park, and the expectation that AI-related sales will account for 25% of total sales, all from the perspective of the entire supply chain.

The "bottleneck" in AI chips has shifted—what TSMC's record sales tell us.
(Photo: illustrative)

The "Bottleneck" in AI Chips Has Changed – What TSMC's Record Sales Tell Us

On July 13th, TSMC (Taiwan Semiconductor Manufacturing Company) announced its June monthly sales. It was up 67.9% year-on-year, reaching approximately 44.268 billion Taiwanese dollars (approximately 13.2 billion US dollars). This is a record high for a single month, and quarterly sales also exceeded the upper end of the company's guidance. While the numbers themselves are impactful, what we really want to focus on here is the shift in the location of the bottleneck that these results indicate.

The Seasonality of "June as a Usually Declining Month" Has Broken

Let's start with a subtle but important point. For the past four years, TSMC's monthly sales have followed a seasonal pattern of being down month-on-month in June. However, this year, sales increased 6.2% compared to May, breaking this seasonal pattern.

Analysts are calling this reversal "remarkable" not simply because the numbers were good. Monthly sales figures for foundries like TSMC actually reflect manufacturing reservations (wafer production slots) that were confirmed 12 to 18 months prior. Therefore, the record-breaking figures aren't simply due to a sudden surge in orders this month, but rather represent the culmination of demand that has been building up for over a year, finally manifesting in the numbers.

The Bottleneck Shifts from "Making" to "Filling"

This is the technically most interesting point. Until now, discussions about AI chip shortages have primarily focused on "manufacturing capacity for advanced processes (such as N3)." However, following the recent reports reveals that the situation has progressed to the next level.

Sravan Kundojjala, an analyst at SemiAnalysis, commented, "The tight supply-demand situation in the AI ​​sector remains serious, and the N3 process, which will be used by major AI GPUs and CPUs this year, is virtually sold out for TSMC." However, some are pointing out that a more serious constraint is shifting from the wafer manufacturing capacity itself to the advanced packaging technology called CoWoS (Chip-on-Wafer-on-Substrate).

CoWoS is a technology that stacks and connects computing chips and high-bandwidth memory (HBM) on a single substrate, and is an essential process for NVIDIA's data center GPUs. According to reports, NVIDIA alone has reserved approximately 60% of TSMC's advanced packaging capacity for 2026. Even if the capacity to manufacture wafers is secured, the packaging process to assemble them into final products cannot keep up—this is the real bottleneck in the current AI chip supply chain.

Increased Production Investment Also Focused on "Packaging"

TSMC itself is showing moves in response to this situation. Construction of Phase II of its packaging facility at the Chiayi Science Park in southern Taiwan began on July 12th. Phase I (two facilities) already began mass production in June, and Phase II will add several more facilities, projected to reach an annual production value of 300 billion Taiwanese dollars and create over 9,000 new jobs.

This is a symbolic investment decision. It confirms that not only is increasing wafer manufacturing capacity important, but concentrated investment in the "back-end process" of packaging is now the top priority in the AI ​​supply chain.

AI-related sales expected to reach "one-quarter of total"

Another figure worth noting is the proportion of AI-related sales in TSMC's revenue. Kundojjala estimates that TSMC is expected to record over $40 billion in AI chip-related sales for the full year 2026, representing approximately 25% of total sales. This means that a category that hardly appeared in TSMC's financial statements until a few years ago has now grown to account for a quarter of the company's total sales.

TSMC holds a dominant market share; according to Counterpoint Research data, it will account for 73% of the global semiconductor foundry market by the first quarter of 2026. Given that major customers for AI and consumer chips—NVIDIA, Apple, and AMD—all rely on TSMC for manufacturing, the company's financial results serve as a thermometer for the entire industry.

What Engineers Should Notice

This series of developments reveals a phenomenon where bottlenecks in AI infrastructure are not concentrated in a single process, but rather shift sequentially across the entire supply chain. From the period when GPU shortages were a major concern, the bottlenecks have gradually shifted: first to wafer manufacturing capacity, and now to the packaging process.

This is very similar to the "bottleneck shift" phenomenon in software development. Resolving one bottleneck reveals the next, previously hidden bottleneck. The AI ​​chip supply chain operates on the same principle, and tracking the movement of these "blockages" will be crucial for understanding the realities of the industry. We can expect to see more detailed information regarding TSMC's plans to expand its advanced packaging capabilities and customer trends for next-generation 2-nanometer technology during its official quarterly earnings announcement scheduled for Thursday.

TSMC半導体AIチップサプライチェーンクラウドインフラNVIDIA

A single AI has replaced the "massive mechanical" process of weather forecasting—a study that performs the work of 1,000 supercomputers in just one second.

This article explains "Aardvark Weather," published in the journal Nature by a research team from the University of Cambridge and other institutions. It describes how they replaced the entire pipeline from observational data to forecast generation with a single machine learning model, achieving equivalent or better accuracy with only 8% of the data used by conventional methods, and generating forecasts in just one second using a GPU. The article carefully analyzes the improvements made through region-specific end-to-end fine-tuning, as well as the current limitations.

Replacing the "Giant Machine" of Weather Forecasting with a Single AI—Research That Performs the Work of 1000 Supercomputers in One Second

The process of weather forecasting is actually a much larger system than we imagine. It involves taking in vast amounts of data from satellites, buoys, balloons, and ground observation stations, estimating atmospheric conditions, solving fluid dynamics equations to predict the future, and finally translating it into regional forecasts—this entire process is processed by dedicated supercomputers over many hours. The research we'll introduce here, "Aardvark Weather," has managed to replace this entire massive machine-based process with just one machine learning model. Let's take a closer look at this paper published in the academic journal "Nature."

Why Has "Replacing the Entire Process" Been Avoided Until Now?

Many studies on AI-based weather forecasting have been published before. However, most of them only replaced "part of the forecasting pipeline" with machine learning. Specifically, while the AI ​​was entrusted with the "future prediction" portion after the initial atmospheric state was given, the most difficult process—"data assimilation"—which involves estimating the current atmospheric state from observational data, still relied on conventional numerical calculation systems.

Another 2021 paper cited by the authors of this paper stated that "several fundamental breakthroughs are needed to achieve this goal (complete end-to-end integration)." In other words, even among experts, there was a general feeling that this was "still many years away." The core of this report lies in the fact that a research team led by Richard Turner of Cambridge University has achieved this sooner than expected.

A Three-Stage Structure: Encoder, Processor, and Decoder

The internal structure of Aardvark Weather is simply organized. Three modules each have their own roles.

1. Encoder: Receives raw observational data from satellites, ground stations, ships, and balloons (radiosondes) to estimate the current atmospheric conditions. 2. Processor: Based on the estimated conditions, it sequentially generates forecasts from one day to ten days ahead, in 24-hour increments. 3. Decoder: Converts the obtained forecasts into local forecasts for specific locations (observatories).

These three modules are all composed of relatively lightweight neural networks (a combination of Vision Transformer and U-Net), and the total training time was approximately 100 hours using four NVIDIA A100 GPUs. Compared to the massive investment required to develop and maintain conventional numerical weather prediction systems—which involve huge dedicated teams and supercomputers—this is remarkably lightweight.

Accuracy Comparable to Conventional Models with Only 8% of Observational Data

What's particularly interesting from a technical standpoint is that Aardvark achieves accuracy equivalent to, or even exceeding, that of operational numerical weather prediction systems (such as the US GFS) across multiple variables and forecast periods, despite incorporating only approximately 8% of the observational data used by conventional operational systems.

Furthermore, for local forecasts at specific locations (temperature and wind speed), it demonstrates performance nearly on par with corrected forecasts in Europe and the United States for forecasts up to 10 days ahead. Particularly noteworthy is that Aardvark clearly outperforms existing corrected forecasts in regions lacking sufficient forecasting infrastructure, such as West Africa and the Pacific region. The fact that this technology benefits regions with limited forecasting infrastructure is significant from a practical value perspective.

An Overwhelming Speed ​​Difference: "1 Second" vs. "1000 Node Hours"

Another point emphasized in the paper is the dramatic difference in computational cost. Aardvark can generate a complete forecast from observational data in approximately 1 second using four GPUs. In contrast, major European numerical weather prediction systems (HRES) require approximately 1,000 node-hours (equivalent to 1,000 hours of computation using multiple computing nodes) just for data assimilation and forecast generation. This difference widens further when regional post-processing is included.

This speed difference is not merely boastful; it has practical implications. The ability to generate forecasts quickly and inexpensively opens up previously impractical applications, such as completely retuning the model to suit specific regions or purposes (agriculture, insurance, renewable energy, etc.). The paper actually reports that retuning the entire model end-to-end by narrowing down regions and variables improved temperature prediction errors by up to 6%. The authors modestly but strongly point out that this improvement is "comparable to the improvements achieved by the ECMWF (European Centre for Medium-Range Weather Forecasts) over more than a year with a large research team."

Limitations are also frankly described

The paper's discussion section carefully describes the limitations. Currently, Aardvark does not operate at the same spatial resolution as state-of-the-art operational systems (IFS), and it does not yet support "ensemble forecasts" (probabilistic forecasts incorporating uncertainty) that combine multiple forecasts. Furthermore, how to integrate data from new observation instruments for which training data does not yet exist is cited as a future challenge.

Nevertheless, the authors position Aardvark as "a pioneer of a new generation of end-to-end weather forecasting systems." The code and trained models are planned to be released on GitHub, which is a positive point as it facilitates replication and further research.

Thoughts from a Researcher

Replacing a massive engineering system like weather forecasting, which has been refined over decades, with a single, relatively lightweight model—the audacity of this idea, and the execution that brought it to a level that passed peer review in Nature, are both what make this paper so compelling. It's important to know that behind the flashy headline, "AI Predicts the Weather," lies a painstaking technical challenge that involved even the most difficult process of data assimilation.

AI/ML論文気象予測Natureケンブリッジ大学機械学習

Semiconductor stocks vanish $1.3 trillion in one week—the true nature of the fear that "it's not a demand problem"

This article provides an accountant's perspective on the sharp decline in semiconductor stocks on July 8th (Micron down 13%, Intel down 9%, SOX index down 5%, etc., resulting in a loss of approximately $1.3 trillion in market capitalization). It covers three contributing factors to the decline: reports of slowing HBM production increases, skepticism about AI investment returns, and the Fed's hawkish stance; the unwinding of expectations as seen from the P/E ratio; bullish news that HBM will be sold out by 2027; concerning signals from Metatron's sale of surplus computing capacity; and future focus points, including TSMC's earnings report on July 16th and Intel's on July 23rd.

Semiconductor Stocks Vanish $1.3 Trillion in a Week – The Truth Behind the Fear That "It's Not a Demand Issue"

On July 8th, the semiconductor sector experienced significant turmoil. Micron plummeted 13% in a single day, wiping out approximately $138 billion in market capitalization. Intel fell 9%, and AMD dropped 7%. The VanEck Semiconductor ETF (SMH), composed of semiconductor-related stocks, also fell 5%. This drop is quite significant, considering the record 71% gain in the previous second quarter. As an accountant, when observing this volatility, the important point is not just the result of "stock prices falling," but why investors suddenly became cautious now, at this particular time.

Experts Argue It's Not Because "Demand Has Declined"

First, it's important to understand that this decline did not occur because demand for AI chips themselves has decreased. Several market participants point to a combination of the following three factors:

1. Reports that SK Hynix is ​​slowing its plans to increase production of high-bandwidth memory (HBM) 2. Growing skepticism about whether massive investments in AI infrastructure will truly generate commensurate returns 3. The Federal Reserve's increasingly hawkish stance under new chairman Kevin Walsh

In other words, this sell-off is not so much because "AI chips have stopped selling," but rather a reassessment of whether the future profits justifying such a rise in stock prices will truly continue.

Seeing "High Expectations" Through the PER Figure

Returning to the basics of accounting and finance, the price-to-earnings ratio (PER, an indicator showing how many times the stock price is compared to earnings per share) is a mirror reflecting how much the market expects from a company's future growth.

Interestingly, even during this downturn, NVIDIA's projected P/E ratio is around 21.7x, which Goldman Sachs argues is actually "undervalued" compared to the company's five-year average of 72x. Therefore, it's reasonable to understand this correction not as a sharp deterioration in the company's actual earnings, but rather as a process of re-adjusting the "expectations" that the stock price had previously priced in to a more realistic level.

On the other hand, FactSet analyzes that the semiconductor industry as a whole is expected to see a 131% increase in second-quarter earnings year-on-year. The earnings growth rate itself remains high, and this point continues to be a valid argument for bullish investors.

HBM Demand and the Bullish Factor of "Sold Out Until 2027"

Looking at the supply side, the situation isn't entirely pessimistic. According to CNBC, the supply of HBM, a major driver of growth in AI semiconductors, is already sold out until most of 2027. TSMC's record-breaking June sales (up 67.9% year-on-year), which I discussed in this column last week, can also be seen as confirmation of this tight supply-demand situation.

In other words, the basic structure of "demand exists, and supply is tight" remains intact, and many analysts believe that this stock price correction is largely a reversal of valuation. Dan Ives, an analyst at Wedbush, described the current situation as "only the top of the third inning, one out in a nine-inning game," maintaining his bullish stance that the AI ​​investment cycle is still in its early stages.

Nevertheless, the "cracks" that cannot be overlooked

However, it would be premature to dismiss this with pure optimism. Concerns raised include the intensification of price competition in enterprise AI chatbot services and Meta's move to sell its surplus AI computing power externally. If the latter is true, it could suggest that Meta itself is not seeing the growth in its AI computing demand as much as initially anticipated, which is a signal that cannot be ignored when measuring the "true return" on AI infrastructure investment.

From an accounting perspective, information related to this "demand backing" is a leading indicator that should be watched more closely than mere stock price fluctuations. Capital expenditures (CAPEX) are capitalized assets in accounting and are expensed over a long period through depreciation. If the demand that should back these capital expenditures is weaker than expected, it will weigh heavily on future financial results in the form of impairment risks and decreased utilization rates.

Future Focus: TSMC and Intel Earnings Announcements

The market is currently watching with bated breath the earnings announcements of TSMC, scheduled for July 16th, and Intel, scheduled for July 23rd. As reported last week, TSMC's June sales have already reached a record high. However, how these figures are presented in the actual quarterly earnings report and full-year outlook, and how concretely the plans for enhancing its cutting-edge packaging capabilities are outlined, will likely influence the overall sector sentiment going forward.

Some hedge funds are already reportedly viewing this decline as a "buy-on-dips" opportunity and are moving to buy. Whether this correction is merely a healthy midcycle reset or the beginning of a full-fledged valuation revision will become quite clear depending on the earnings results of these two companies—especially the content of their guidance (future performance outlook).

Practical Perspectives on Investment Decisions

From an accountant's standpoint, in situations like this, it becomes increasingly important to return to grounded indicators such as free cash flow generation, return on invested capital (ROIC), and balance sheet health, rather than just focusing on growth stories. These fundamental indicators, often overlooked during periods of sharp price increases, may re-emerge as key factors in investment decisions in the next quarter and beyond.

Even within the semiconductor sector, the valuation gap may widen further between companies that actually generate cash and have solid balance sheets, and those that rely on investment narratives based on future demand growth. Focusing on these fundamental financial data, rather than being swayed by flashy price movements, will likely be crucial for navigating this volatile period.

半導体株式市場AIチップ投資ファイナンスバリュエーション
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