Despite recent pullbacks in the artificial intelligence semiconductor sector, the industry investment cycle has not yet peaked.
According to a new report from Nomura, capital expenditure from cloud service giants is expected to persist through 2027, with an unprecedented component supply shortage on the horizon. Sustained price increases and upward revisions to earnings forecasts are identified as the primary catalysts for further market gains.
The Impending Supply-Demand Mismatch
The market is projected to face its most severe supply chain mismatch in history during the second half of 2026. While Taiwan Semiconductor Manufacturing (TSM) is aggressively expanding its wafer-level packaging capacity, the true supply bottleneck is expected to shift to smaller components like wafer-on-substrate (WoS), printed circuit boards (PCBs), and copper-clad laminate (CCL). This structural shortage will directly intensify short-term market price volatility but also underscores the long-term sustainability of the current cycle.
Driven by robust demand and cost inflation, Nomura has significantly raised its global server market forecasts. The firm now projects AI server revenue to grow by 78% in 2026 and 76% in 2027. Consequently, the firm has reiterated its "buy" ratings on nine Asian AI technology companies, including Taiwan Semiconductor Manufacturing and MediaTek, and has comprehensively raised target prices, advising investors to buy on market weakness.
As competition for advanced packaging capacity intensifies among tech giants like NVIDIA (NVDA) and Alphabet (GOOGL), the competitive landscape for AI chips is being reshaped. Simultaneously, the rise of Agentic AI is unexpectedly driving demand for traditional server CPUs, opening new market opportunities for the semiconductor testing and packaging industry.
Clear Price Increase Expectations Amid Deepening Shortage
The semiconductor hardware supply chain is facing an unprecedented supply-demand imbalance. Nomura notes that many component suppliers have severely underestimated the order upside potential driven by AI in their capacity expansion plans. Beyond the well-known shortages in advanced process nodes, advanced packaging, memory, and CPUs, components including PCBs, CCL, IC substrates, high-end capacitors, power management ICs, and optical components are now also in short supply.
The situation is expected to worsen when NVIDIA's Rubin architecture and AWS's Trainium 3 begin mass production in the second half of 2026. Since building new greenfield capacity typically requires two years, supply will likely remain constrained through 2027. This broad-based component shortage will not only limit AI server growth but also severely squeeze supply chains for non-AI sectors like consumer electronics and automotive. Against this backdrop of intensifying shortages, price increases across the supply chain are expected to persist or even accelerate.
Surging Data Center Build-Outs and Sustained Capex
Global data center construction data provides a leading indicator for hardware demand. Nomura's proprietary data shows the number of tracked global data center projects has increased from 240 to 280, with the number of gigawatt-scale projects rising to about 50. New compute deployment is projected to reach 32GW in 2027, with 23GW already visible for 2028.
This demand is primarily driven by capital expenditure from hyperscale cloud providers like Microsoft, Alphabet, Meta, and AWS, as well as emerging cloud service providers. Additionally, a national AI compute network plan has been drafted, proposing a substantial investment over the next five years to achieve a nationwide network of distributed data centers by 2028. These ongoing projects provide solid support for hardware demand over the next two to three years.
Intensifying Battle for Advanced Packaging Capacity
In advanced packaging, Taiwan Semiconductor Manufacturing's stance has turned aggressive. The company's chairman has stated it is striving to meet all demand and will not forgo any business opportunities. Nomura expects TSM's CoWoS capacity target for 2027 to reach 2 million units. However, due to bottlenecks in WoS and other small components, actual CoWoS output in 2027 may only be 1.8 million units.
Amid this capacity constraint, competition for resources among AI chip giants will be fierce. Nomura predicts NVIDIA will still command about 55% of TSM's CoWoS capacity in 2027, while Alphabet's TPU share will jump from 23% in 2026 to 27%, making it the fastest-growing AI logic chip. This intense rivalry will severely squeeze capacity availability for other players like AMD and AWS.
Concurrently, Intel's EMIB-T technology is emerging as a significant potential threat to TSM's advanced packaging leadership. Alphabet's next-generation TPU v9 project, in collaboration with MediaTek, plans to adopt Intel's EMIB-T packaging. To maintain its lead, TSM is accelerating the mass production of its SoIC and CoPoS technologies to meet future packaging demands for larger chips.
Agentic AI Fuels Unexpected Server CPU Demand
Beyond AI accelerators, the explosion of Agentic AI is driving a surge in demand for server CPUs.
The CEO of NVIDIA has noted that the future AI economy is token-based, with its Vera CPU designed specifically for low-latency, high-bandwidth Agentic AI processing.
The CEO of AMD has stated that Agentic AI requires CPUs for orchestration and data movement, estimating the total addressable market for server CPUs could exceed $120 billion by 2030. The CEO of Arm also believes the data center CPU market presents a multi-hundred-billion-dollar opportunity.
The surge in CPU demand directly benefits outsourced semiconductor assembly and test (OSAT) providers. Furthermore, the CPU server boom is significantly increasing demand for baseboard management controllers (BMCs).
Based on strong expectations for both AI and general server markets, Nomura has comprehensively raised its earnings forecasts and target prices for the Asian semiconductor hardware supply chain. In the foundry and chip design segments, Taiwan Semiconductor Manufacturing, as the core enabler for AI chips, has seen its profit forecasts for 2026-2028 raised, while MediaTek is positioned to be the primary beneficiary of Alphabet's growing TPU share.
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