AI Chip Supply Chain Faces Packaging Bottleneck

U.S. chip makers still depend on Taiwan for final assembly, creating a major supply chain risk

Apr. 9, 2026 at 11:10am

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A highly detailed, glowing 3D macro illustration of advanced semiconductor packaging components and infrastructure, including interconnects, substrates, and heat sinks, bathed in neon cyan and magenta lights to conceptually represent the vulnerabilities in the AI chip supply chain.Intricate, illuminated chip packaging components symbolize the critical supply chain risks facing the U.S. AI industry.Georgetown Today

The advanced packaging process that connects chips into usable systems is emerging as a bottleneck in the AI chip supply chain, as demand surges and capacity remains concentrated in Asia. U.S. chip makers like Nvidia still send all their chips back to Taiwan for packaging, even if the chips were manufactured in the U.S., creating supply chain complexity and risk. Intel is positioning its packaging capabilities as a strategic advantage to win customers, as the advanced packaging market is projected to grow eightfold to $80.5 billion by 2033.

Why it matters

The reliance on Taiwan for the final assembly of U.S.-made chips creates a major supply chain vulnerability, as any disruptions in Taiwan could severely impact the availability of advanced AI chips. This issue highlights the need for the U.S. to invest in domestic packaging capabilities to reduce its dependence on overseas suppliers.

The details

Advanced packaging, the step that connects chips into usable systems, is tightening as demand surges and capacity remains concentrated in Asia. John VerWey of Georgetown University's Center for Security and Emerging Technology warned that advanced packaging could 'emerge as a bottleneck very quickly' if companies don't invest in new facilities. While Taiwan Semiconductor is ramping up new packaging facilities in Taiwan and Arizona, it still sends all chips - including those made in the U.S. - back to Taiwan for final assembly. Bringing packaging closer to U.S. fabs would cut shipping time and complexity, according to TechSearch International's Jan Vardaman. Intel is using its packaging capabilities as a strategic entry point to win customers, even as it struggles to secure major chip manufacturing clients.

  • The advanced packaging market is projected to grow eightfold to $80.5 billion by 2033, expanding at a 26% CAGR.
  • Taiwan Semiconductor could retain over 40% market share in advanced packaging by leveraging its integrated approach to chip fabrication and packaging.

The players

John VerWey

A researcher at Georgetown University's Center for Security and Emerging Technology who warned about the advanced packaging bottleneck.

Jan Vardaman

The president of TechSearch International, who said bringing packaging closer to U.S. fabs would cut shipping time and complexity.

Mark Gardner

An Intel executive who said the company's packaging capabilities could open doors to deeper customer relationships.

Taiwan Semiconductor Manufacturing Company

The world's largest contract chipmaker, which is ramping up new packaging facilities but still sends all chips, including those made in the U.S., back to Taiwan for final assembly.

ASE Technology

A contract chip assembler projected to expand its market share as demand for advanced packaging grows.

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What they’re saying

“It can emerge as a bottleneck very quickly if people are not making the CapEx investments proactively to account for the surge in fab output that's going to be coming in the next couple of years.”

— John VerWey, Researcher, Georgetown University's Center for Security and Emerging Technology

“Bringing packaging closer to U.S. fabs would be a major improvement, as it would cut shipping time and complexity.”

— Jan Vardaman, President, TechSearch International

“Packaging could open doors to deeper relationships.”

— Mark Gardner, Intel Executive

What’s next

Taiwan Semiconductor is ramping up new packaging facilities in Taiwan and Arizona to ease the advanced packaging bottleneck, but it remains to be seen if these investments will be sufficient to meet the surging demand.

The takeaway

The reliance on Taiwan for the final assembly of U.S.-made chips creates a major supply chain vulnerability that the U.S. needs to address by investing in domestic packaging capabilities. The advanced packaging process has emerged as a critical choke point in the AI chip supply chain, highlighting the need for greater supply chain resilience.