TSMC and ASE accelerate CoWoS capacity expansion; UBS raises cloud AI advanced packaging TAM expectations

Overview

This report focuses on advanced packaging capacity expansion driven by cloud AI. Its core view is that the CoWoS expansion pace of TSMC and ASE is re-accelerating and is stronger than UBS expected a month ago. UBS views CoWoS capacity as a leading indicator of cloud AI demand over the next 2-3 years, and believes the upward revision to 2026-2027 expansion implies further upside for server CPU, GPU, and ASIC demand.

Core views

The report's core views include: first, TSMC will remain the largest participant in advanced packaging, with technology upgrades such as CoWoS, CoPoS, 3D stacking, and CPO supporting continued growth in its back-end business; second, opportunities for OSATs such as ASE will increase from 2H26 to 2027, especially driven by server CPU demand; third, platforms such as Nvidia Rubin, Vera CPU, AMD Venice, MI450/455, Google TPU, and Amazon Trainium will collectively drive higher CoWoS demand; fourth, equipment-chain names including GPTC, Chroma, Hon Precision, ASMPT, and testing-chain player KYEC are expected to benefit.

Analysis framework

UBS derives its investment conclusions through advanced packaging supply-demand models, shipment forecasts for major customer chips, a split between TSMC and non-TSMC capacity, back-end sales contribution, equipment shipment volume, and valuation multiple frameworks. The report also compares the contributions of GPU and ASIC customers to CoWoS wafer demand, and uses cloud capex, N3/N2 expansion, and HBM-related capex as validation signals for demand strength.

Methodology notes

• Capacity supply-demand trackingCoWoS capacity and demand balance

  Using CoWoS capacity expansion as a leading indicator of cloud AI demand

  The report compares CoWoS capacity expansion at TSMC, ASE, and other OSATs with chip shipment demand from customers such as Nvidia, AMD, Google, Amazon, and Meta to assess the advanced packaging cycle over the next 2-3 years.

• Supply chain breakdownGPU and ASIC demand structure analysis

  Breaking down CoWoS wafer demand by customer and chip type

  The report separately estimates CoWoS demand from Nvidia, AMD, Google TPU, Amazon Trainium, Meta, and other ASIC customers, showing that GPUs remain the main source of demand in 2027, while ASICs also maintain an important contribution.

• Valuation methodP/E valuation method

  Deriving target prices from earnings upgrades and target P/E multiples

  GPTC's target price was raised to NT$5,000, based on 33x 2027-2028E P/E; UBS believes a 36% long-term earnings CAGR can support this valuation multiple.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TSMC / 2330.TW

  Core beneficiary of cloud AI advanced packaging and the largest CoWoS capacity provider

  Strengths

  Leading market share, continued upward revisions to CoWoS capacity, higher back-end sales contribution, and benefits from technology upgrades such as 3D stacking, CoPoS, and CPO.

  Weaknesses

  Advanced packaging requires high investment intensity, and the subsequent expansion pace still needs to match actual customer demand.

  Comparison

  Even if supply becomes more diversified in 2027-2028, the report still believes TSMC will remain the largest participant.

  Risks

  Slower-than-expected CoWoS expansion, weaker-than-expected cloud AI demand, technology substitution, and geopolitical uncertainty.

• ASE / 3711.TW

  Beneficiary of CoWoS expansion and full-process advanced packaging on the OSAT side

  Strengths

  Full-process CoWoS capacity in 2027 is expected to reach about 50kwpm, driven by AMD Venice and server CPU demand.

  Weaknesses

  Compared with TSMC, it still operates in a more fragmented OSAT competitive landscape, and capacity utilization depends on the pace of customer ramp-up.

  Comparison

  The report expects OSAT advanced packaging capacity to increase in 2027, with ASE being more representative than other OSATs.

  Risks

  Weaker-than-expected server CPU demand, slower-than-expected customer order transfer, and technology and yield ramp risks.

• GPTC / 3131.TWO

  Advanced packaging wet process equipment supplier, benefiting from TSMC and OSAT capacity expansion

  Strengths

  High share among OSAT customers, strong technical capabilities, historically maintaining gross margin above 40%, and the report expects gross margin to gradually recover to about 45% in 2027-2028.

  Weaknesses

  Gross margin faces some pressure in 2025-2026 due to outsourcing part of module assembly to meet demand.

  Comparison

  The report believes GPTC has technological leadership and product iteration advantages over competitors, with the target price raised from NT$4,000 to NT$5,000.

  Risks

  Slower-than-expected CoWoS expansion, competitor technology breakthroughs, geopolitical uncertainty, and weaker-than-expected AI growth.

• MediaTek / 2454.TW

  Beneficiary of Google TPU design services and ASIC demand growth

  Strengths

  Expected to support 4 million units of TPU v8t capacity and listed as one of UBS's top picks in the cloud AI semiconductor supply chain.

  Weaknesses

  Growth depends on Google TPU project progress and ASIC customer demand.

  Comparison

  Compared with the traditional GPU chain, MediaTek represents upside opportunities in the ASIC design service segment.

  Risks

  Customer project delays, weaker-than-expected ASIC demand, and intensifying competition.

• Chroma, Hon Precision, ASMPT, KYEC, Aspeed, GUC, Alchip

  Extended beneficiary assets across advanced packaging, testing, BMC, CPU, and Trainium-related supply chains

  Strengths

  They benefit respectively from advanced packaging test equipment, final testing, BMC, potential upside in Google CPU, and Amazon Trainium opportunities.

  Weaknesses

  Each company has a more diversified benefit path and is sensitive to specific customer projects, capex, and order timing.

  Comparison

  These companies are supply-chain beta names beyond TSMC, ASE, MediaTek, and GPTC.

  Risks

  Customer order volatility, valuations already overly reflecting expectations, and slowing AI hardware demand or capex.

Key data

• TSMC CoWoS capacity forecast130kwpm by end-2026, 180kwpm by end-2027Previous forecasts were 120kwpm and 150kwpm, respectively.
• ASE full-process CoWoS capacity forecastAbove 20kwpm by end-2026, about 50kwpm by end-2027The previous end-2027 forecast was 40kwpm.
• Industry CoWoS capacity forecast160kwpm by end-2026, 250kwpm by end-2027Reflects UBS's view of expanding advanced packaging TAM.
• AMD CoWoS demand2027E growth 232%Mainly driven by volume ramp-up of Venice server CPU and MI450/455; Venice 2027 shipments are estimated at 4 million units.
• Nvidia CoWoS demand2027E growth 57%Vera CPU 2027 shipments are estimated at 5.5 million units, and Rubin GPU is expected to accelerate significantly in 2H26.
• Google TPU chipset shipments4.1 million units in 2026, 9 million units in 2027MediaTek is expected to support 4 million units of TPU v8t capacity.
• TSMC back-end business as a percentage of salesAbout 12.1% in 2026E, about 15.3% in 2027EIncludes advanced packaging, bumping, and testing.
• GPTC tool shipmentsAbout 220 units in 2026, about 330 units in 2027The report expects tool shipments to grow 22% and 50% in 2026 and 2027, respectively.
• GPTC target priceNT$5,000Raised from NT$4,000, based on 33x 2027-2028E P/E.
• ASE target priceNT$835Raised from NT$660.

Impact & implications

If UBS's view materializes, the cloud AI advanced packaging investment theme will extend from TSMC's standalone expansion to a broader supply chain including OSATs, equipment, testing, and design services. TSMC still holds the largest market share and advantages from technology upgrades, while ASE and Amkor may gain more opportunities from 2H26 to 2027, and equipment makers such as GPTC may benefit from OSAT expansion and demand from new technologies such as SolC, panel-level packaging, and CPO.

Risks

• CoWoS capacity expansion is slower than expected.
• Competitors achieve breakthroughs in advanced packaging or related equipment technologies.
• Geopolitical uncertainty affects the supply chain, customer orders, or capital expenditures.
• Cloud AI growth is weaker than expected, leading to lower-than-forecast demand for GPUs, server CPUs, or ASICs.
• Key platforms such as Rubin, Venice, TPU, and Trainium experience ramp delays.
• Equipment makers face greater-than-expected gross margin pressure due to outsourcing, capacity expansion, or competition.

What to watch

• Whether TSMC's 2026-2027 CoWoS capacity progresses along the 130kwpm and 180kwpm path.
• Whether ASE's full-process CoWoS capacity can rise to about 50kwpm in 2027.
• The volume ramp slope of Nvidia Rubin and Vera CPU from 2H26 to 2027.
• Whether AMD Venice and MI450/455 shipment delivery materializes in 2027.
• Changes in customer orders for Google TPU v8t, TPU v9, and Amazon Trainium 3/4.
• Whether TSMC's back-end business sales contribution increases further from about 12% in 2026 to about 15% in 2027.
• Whether GPTC's tool shipments, gross margin recovery, and support for the 33x P/E valuation materialize.
• The substitution or complementary impact after 2028 of Intel EMIB-T, TSMC CoPoS, and other advanced packaging solutions.