As demand for AI soars, costs have also risen sharply! Rumor has it that TSM.US is planning a price increase of up to 10% in 2027, “chip inflation” concerns may heat up

The Zhitong Finance App learned that according to media reports quoting people familiar with the matter, TSM.US has discussed with customers and plans to raise chip manufacturing prices by up to 10% in 2027 to cover rising production costs. The report said that as the main chip OEM supplier for Nvidia (NVDA.US) and Apple (AAPL.US), TSMC began relevant negotiations in June and finalized a basic price increase plan this month, with an increase of between 5% and 10%. The report said that these price adjustments will take effect next year, covering advanced process chips and mature process chips.

TSMC is an OEM chip for many of the world's tech giants. In addition to Nvidia and Apple mentioned above, its customers include companies such as Google (GOOGL.US) and Amazon (AMZN.US). TSMC has long resisted sharp price fluctuations in similar memory chip industries, and has always emphasized establishing long-term partnerships with customers to cope with the sharp ups and downs of the industry cycle. Meanwhile, disruptions in the global supply chain caused by the Middle East conflict and surging demand in the AI industry are driving up production costs and increasing pressure on TSMC to accelerate the expansion of production capacity around the world.

Customers, including Nvidia, have been calling on TSMC to accelerate production expansion due to market concerns about bottlenecks in the supply of AI accelerators and other key components required for data centers. In response, TSMC has launched large-scale investment programs, including the Arizona project, which is known as the largest foreign direct investment project in US history.

TSMC and other chip makers are under pressure to soar on a large number of cost items in the production process, including materials, equipment, and electricity costs. This month, TSMC raised its 2026 capital expenditure forecast. Currently, capital expenditure for 2026 is expected to reach 60 billion to 64 billion US dollars, higher than the previous forecast of 52 billion to 56 billion US dollars. The company anticipates that increased demand for artificial intelligence (AI) and the rising cost of expanding production capacity will drive investment, especially in the process of advancing the US $265 billion expansion plan with a total investment scale of Arizona.

According to reports, TSMC delayed implementing price increases until 2027 in order to allow customers time to adjust. TSMC CEO Wei Zhejia said in response to questions from analysts after announcing better-than-expected earnings reports in July: “We will not suddenly raise prices. We earn a fair return on our value and ensure that our profits and gross margins are sufficient to support continued long-term expansion. This is beneficial not only to customers, but also to TSMC; this is our business philosophy.”

“Our pricing strategy is strategic rather than opportunistic,” TSMC said in a statement on Tuesday. We will continue to work closely with our customers and show them our value.”

It is worth mentioning that reports that TSMC will raise prices next year come at a time when concerns about “chip inflation” are heating up recently. According to reports, investment agency Susquehanna said in a recent report that the global semiconductor industry's delivery cycle was further lengthened in June, and even in the context of rising prices, this trend is still very significant.

The bank's analyst Christopher Rolland pointed out that the semiconductor industry's delivery time in June recorded the biggest monthly increase since the current cycle, increasing by 5 days to 19.4 weeks from month to month. What is more remarkable is that industry pricing experienced the “biggest monthly increase” in June, an increase of 5% over the previous month. Accelerated deliveries coincided with rising prices, highlighting that the chip supply and demand pattern continues to tighten.

Furthermore, delivery growth in June was “broad-based” — around 81% of the companies it covered had flat or rising deliveries, and all distributors experienced growth. Delivery times for all product categories increased month-on-month, which analysts believe “indicates that the upward cycle is now expanding beyond simulated parts.”

In contrast to the continuing tight fundamentals of supply and demand, US chip stocks experienced severe shocks in July. The Philadelphia Semiconductor Index fell about 17% in July, although the increase was as high as 65% during the year. The index fell by about 10% last week, the biggest weekly decline in more than a year. It has retreated more than 20% from its all-time high in June, and has officially entered a technical bear market.

Behind the sharp fluctuations in chip stock prices, the acceleration of delivery and the rise in prices seem to mean that a deeper structural contradiction is surfacing — “chipflation” (Chipflation). Julia Hermann, a global market strategist at New York Life Insurance Investment Management, recently warned that “chip inflation” — that is, soaring prices of AI-related logic chips and memory chips — will be the next headwind to test the resilience of AI transactions.

Julia Hermann stated in an interview: “Hyperscale cloud service providers are now in a dilemma. On the one hand, there are rising investment costs — rising chip prices, compounded by rising energy and utility costs; on the other hand, it will still take years to realize the return on investment. We believe this environment will truly test the market's belief — as long as investors remain convinced of the long-term potential of AI trading, they may be able to tolerate short-term fluctuations and a slow pace of monetization.”

Julia Hermann points out that one of the best indicators for observing memory chip inflation is the Korean DRAM export price index. In the past cycle, the year-on-year growth rate of memory chip prices peaked at around 100%, but now, the price of DRAM produced in Korea has risen as much as 370% year over year. In her opinion, the sharp rise in chip prices is certainly a sign of strong demand, but it is also like a double-edged sword — continued high prices will drastically drive up the construction costs of AI infrastructure, which in turn may curb or even end the current AI capital expenditure boom. Therefore, at present, she mainly focuses on “quality” in the AI supply chain, that is, strong profitability, medium to low profit fluctuations, and sufficient interest coverage.

Choi Tae-won, chairman of the South Korean memory chip giant SK Hynix, also recently issued a warning about chip inflation, saying bluntly that it is not normal for the current memory market to maintain high prices for a long time. He predicts that global semiconductor demand will expand dramatically next year (2027). Among them, demand in the AI field will increase 60% to 100% compared to this year, and overall semiconductor demand will also increase by at least 50% to 60%. However, new supply will be “almost zero” next year, and the gap between supply and demand is likely to widen further.

Choi Tae-won gave an intriguing response to concerns that production expansion might end this “super cycle” early. He said that chip prices are currently at an abnormally high level and should have declined somewhat. If prices continue to rise and “chip inflation” is further intensified, the semiconductor industry will eventually be repulsed. However, he made it clear that increasing supply and driving prices back down does not mean that the company is unprofitable.