Core Insights - TSMC's 3nm advanced process capacity is facing significant constraints due to surging demand from AI chip giants like NVIDIA, leading to a supply-demand gap that is expected to drive TSMC's overall gross margin above 60% by 2026 [2][4]. Group 1: Capacity Constraints - TSMC's 3nm monthly capacity is projected to reach only 140,000 to 145,000 wafers by the end of 2026, which will not meet the total orders [2]. - Major clients including NVIDIA, Apple, Qualcomm, MediaTek, Google, Amazon, Meta, and Microsoft have fully booked the 3nm capacity, covering critical areas such as AI training chips and flagship smartphone processors [4]. Group 2: Profitability and Pricing - The scarcity of capacity is translating into profitability for TSMC, with some clients willing to pay 50% to 100% above normal prices for expedited orders [4]. - If this trend continues, combined with planned price increases in 2026, TSMC's gross margin is expected to remain above 60%, with growth momentum likely to exceed market expectations [4]. Group 3: Capacity Expansion Strategies - To alleviate capacity pressure, TSMC is implementing flexible strategies, such as converting part of the 4nm production line at the Tainan Fab18 to 3nm, which will increase monthly output by approximately 25,000 wafers [5]. - TSMC is also collaborating across factories to utilize 6nm/7nm lines at Fab14 for 3nm backend processes, potentially releasing an additional 5,000 to 10,000 wafers per month in the second half of 2026 [5]. - The 3nm capacity at TSMC's Arizona facility is not expected to contribute until early 2027 [5].