Key Risk of Investing in AI

US leads in chip design but lags in manufacturing


Nvidia’s market cap has reached $2.3 Trillion, making it the 3rd most valuable publicly listed company in the world.

Most of its recent growth is driven by its Data Center business line, which makes advanced semiconductor chips that AI companies use for computing.

Semiconductors chips are not only essential for AI but for all modern electronics (from your phone to advanced military systems). As such, they are a strategic asset for a country and having (or not having) reliable access to them can have serious geopolitical ramifications.

Today’s chart explores semiconductor chip manufacturing and its concentration in a few countries.


Broadly, there are 3 key stages in Semiconductor manufacturing:

  1. Design: This is the stage in which the logic and physical design of chips is done (and validating the designs). US leads the world here, with 60% market share, thanks to leading chip design companies like Nvidia, AMD and Intel. Most of the other design companies are in East Asia (Taiwan, China, South Korea)

  2. Fabrication: Fabrication labs (“Fabs”) are advanced manufacturing setups (the ones where you have to wear Hazmat suits to work) which convert chip designs into physical chips called “wafers”. US is a distant second here with only 27% market share , lagging Taiwan, which has 47% market share. Taiwan Semiconductor Manufacturing Company (TSMC) is the largest and most well known Taiwanese manufacturer of semiconductor chips.

  3. Assembly, Testing and Packaging: The finished wafer from previous stage has numerous chips in a grid pattern. In this stage, the wafer is divided into individual chips, mounted on a frame, wired to facilitate connection with external devices, and put inside a protective case. The chips are also tested at this stage for their operational capacity. Historically this was a low value-add stage, but with rise in transistor density, packaging has become a driver of performance. The market share is more distributed than in previous two stages, with US and Taiwan closely competing at 28% and 29% market share respectively. ASE is the one of the leading company operating in this space.

Why should you care?

Given how critical semiconductors are to our everyday life, its important to understand our dependency and risks on only a few countries making them.

Further, from an investing standpoint, companies like Nvidia and AMD carries significant geopolitical risk - Any type of conflict scenario in East Asia can threaten supply chain lines, harming the ability of these companies to get their chips manufactured.


Instead of mindlessly scrolling Social Media, be more mindful about what you read online.

I’ve blocked Reddit and Twitter on my phone. And carefully curating what I feed my mind.

Here are few articles that I enjoyed reading this week that you may also like:


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