(Preview) A Call to Action for TSMC’s AI Customers, Wall Street’s Netflix Anxiety, Q&A on Tech’s Cignetti, OpenAI, Starbucks

TSMC’s pricing power in the AI era, a brief history of TSMC’s culture and CapEx decisions, and ongoing capacity constraints that should be pushing tech companies to build up competitors. Then: Thoughts on Netflix after Ben’s interview with co-CEO Greg Peters, including Wall Street’s concerns despite enormous success, whether and how the Warner Brothers acquisition could be a counter to YouTube, and the difference between Netflix content and user generated YouTube content. At the end: Questions about the Curt Cignetti of tech, a victory lap on OpenAI, advertising in chatbots, advertising as a force for good, and Andrew’s Starbucks habit.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Sharp?

  Hello and welcome to a free preview of Sharp Tech.

• 0:08Andrew Sharp?

  Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp. Joining me in the same room today, Ben Thompson. Ben, how you doing?

• 0:18Ben Thompson?

  Pretty flustered out. Apparently, I'd forgotten. I don't know that I ever knew that your podcast voice is a good, what, 15 decibels louder than your than your regular voice?

• 0:30Andrew Sharp?

  A little bit. I was just lectured as I did my hello. I'm trying to speak in hushed tones here as we record in person because I was allegedly too loud. I listened back. It sounded normal, but here we are, you know, sharing your basement together.

• 0:46Ben Thompson?

  Yeah, I don't know what to say. It's not quieter at all.

• 0:50Andrew Sharp?

  He really is. He really is flustered here.

• 0:53Ben Thompson?

  No, I, it's been a day of fluster, to be totally honest. Hilariously, we planned for you and some other folks in this checkered universe to come visit this weekend, which is gonna be like the coldest weekend in literally like 45 years or something like that.

• 1:09Andrew Sharp?

  I'm trying to talk loud on the podcast today because this is actually gonna be the last podcast that I'm ever able to record. 20 below is the low tomorrow in Madison. I'm glad that I'm actually experiencing real Wisconsin winter, though, with my first trip.

• 1:24Ben Thompson?

  I, I don't think you're glad because you showed up in loafers and no socks. It was one of the most unbelievable sights I've ever seen in my life. Andrew Sharp coming down the airport stairs utterly unprepared for what he's about to encounter.

• 1:39Andrew Sharp?

  And immediately being roasted by Ben for about 10 minutes straight for the loafers. But look, one of my rules for adulthood is you have to dress well when you're traveling. So I had a nice pair of loafers, nice pair of slacks, a nice little Henley hair. Casual. Don't do too much when you're flying, but I felt good. Look good, feel good, feel good, play good. Or podcast good.

• 2:03Ben Thompson?

  I asked him, I like, hold your hand, walking to the car to make sure you didn't slip.

• 2:07Andrew Sharp?

  Yeah, loafers with no socks. I'm gonna have fro- Spitting ankles. That's my best case scenario for tomorrow's weather. Um, in any event, here we are. We have a lot to get through today and we're going to begin with one of the most important tech companies of the century. And a company that we actually don't talk about very much on the podcast. So I'm going to read a note.

• 2:27Ben Thompson?

  That's a new problem, not a B problem.

• 2:29Andrew Sharp?

  I honestly, I was thinking about it. I was like, it's probably my fault that we never discussed TSMC. You certainly write about TSMC plenty, but.

• 2:37Ben Thompson?

  Well, before it was cool for the record.

• 2:38Andrew Sharp?

  That's true. You were early, um, early on everything. That's why people subscribe to Strategery. Uh, Sam says, Ben and Andrew. What is stopping TSMC from charging more insane margins? They have clearly increased their margins after the AI boom, but they're the only option in town and especially during the duration of this bubble. Nobody can go anywhere else. Don't they have such insane leverage in the current moment? That Apple and Nvidia would pay basically whatever they charge. Why have their margins not increased more? So Ben, we get this question every couple of months. We actually answered it about two and a half years ago.

• 3:17Andrew Sharp?

  But the same question came to mind with me. I was reading about the H200s and Nvidia having to go to TSMC and negotiate for more capacity in order to serve the H200 orders. And it was just a reminder that basically anyone who's doing anything in AI is ultimately going through TSMC. You wrote about them earlier this week. Do you have an answer for Sam? Why aren't they able to just extract crazier and crazier margins from everybody?

• 3:44Ben Thompson?

  Well, before we get to that, I do want to compliment you, um, especially since I, you know, revealed your sartorial choices to the world and how inappropriate they were. That, uh, at least you think about TSMC and the fact that all the AI chips come from there. That is a big improvement over.

• 4:02Andrew Sharp?

  Everyone.

• 4:03Ben Thompson?

  Well, you had, uh, Dario Amade at Davos this week talking about giving chips to China is like giving nuclear weapons to North Korea.

• 4:13Andrew Sharp?

  Mm hmm.

• 4:14Ben Thompson?

  And what did I do? As I do with every article or every comment from him about this issue? I do a control F. I search the document that I'm reading. I type in Taiwan. And there's no results. Like, like, can we actually? So a little bit of a rant before we get to the margin question.

• 4:35Ben Thompson?

  Can we think about the implication if these are the same as giving nuclear weapons to North Korea?

• 4:40Andrew Sharp?

  Mm hmm.

• 4:41Ben Thompson?

  What does it mean if the nuclear weapons plant? Is eighty miles off the coast of China?

• 4:50Andrew Sharp?

  Yeah.

• 4:50Ben Thompson?

  Can we think it is it's unbelievable to me like like just the can we think through the totality of this issue?

• 4:58Andrew Sharp?

  Mm hmm.

• 4:59Ben Thompson?

  Anyhow, that ran aside, TSMC margins. So I this is actually an interesting time to revisit this question. In broad strokes, TSMC.

• 5:10Ben Thompson?

  I don't know how long do you want me to go on this there there there because there really is a cultural aspect to this. You have to remember, TSMC starts, you know, forty some years ago. And they have nothing. They they get some process technology from Philips. Um, there's actually an interesting universe of Philips spin offs. ASML is also a Philips spin off.

• 5:32Andrew Sharp?

  Yeah.

• 5:33Ben Thompson?

  TS TSMC is one. There there are several other ones sort of in the the sort of ecosystem. But what they can offer is the fact that they have nothing to offer. And what I mean is if you're someone who has an idea to make a chip, you can go to them. And number one, you can get guaranteed capacity. You're not going to get crowded out because at that point, the alternative is you go to Texas Instruments, you go to Intel, maybe Intel. You like beg for extra capacity, which by the way, if they suddenly have more cells than they need, you get booted out.

• 6:06Andrew Sharp?

  Right.

• 6:07Ben Thompson?

  And by the way.

• 6:08Andrew Sharp?

  So when you say what they can offer, you're referring to TSMC back when they were trying to take market share in the beginning, right?

• 6:15Ben Thompson?

  And this is literally all they have is number one, we can guarantee you capacity. We're not going to crowd out your order. And number two, because we're not making our own chips.

• 6:23Andrew Sharp?

  We'll work with you to make whatever you want to make.

• 6:25Ben Thompson?

  No, we won't take your IP.

• 6:27Andrew Sharp?

  Oh, yeah.

• 6:28Ben Thompson?

  Like like which was which is a very sort of real and legitimate concern. Um, there's aspects of Intel is still not trusted.

• 6:37Andrew Sharp?

  Mm hmm. Samsung ran ran into that issue as well, right?

• 6:41Ben Thompson?

  Um, Samsung has gotten, uh. It's a little more complicated because obviously Apple used to be on Samsung. I think Samsung's done pretty well in terms of having a wall between their foundry business and the rest of their business. But there is a fundamental conflict of interest. If you're Apple making your chips at Samsung and Samsung is competing with you.

• 7:01Andrew Sharp?

  Right, I recall reading something about that tension in the Apple in China book. But I don't know exactly what the circumstances were. But either way, in broad strokes, the conflict of interest just does not exist at TSMC.

• 7:14Ben Thompson?

  And that was literally their selling point.

• 7:17Andrew Sharp?

  Yeah.

• 7:17Ben Thompson?

  It's like, we're not going to crowd you out and we're not going. Because by the way, our process is like five processes behind the leading edge. Like, so you start out and you're making your basic chips, right? The things that, that, you know, we don't even think about, we didn't think about until COVID. When somebody ran out of these super basic chips and like, nothing could be made. So they, they come, and then the other thing is it's going to be super cheap, as cheap as we can offer it. What we're going to do is we're going to build these fabs and they will depreciate over five years or whatever the number is.

• 7:53Andrew Sharp?

  Yeah.

• 7:53Ben Thompson?

  But we're going to run those fabs forever. Now, their earliest fabs have long since been closed down, but they still have fabs from the late 90s. Like 98, 99, I think is maybe the oldest fab that they still have in operation, which is making these ancient chips. That are fine for what they are. And there are certain products, long-lived products that have just been standardized on this chip for ages and ages.

• 8:13Andrew Sharp?

  Sure.

• 8:14Ben Thompson?

  And they sell these chips for pennies.

• 8:15Andrew Sharp?

  Money on top, though.

• 8:16Ben Thompson?

  Right.

• 8:17Andrew Sharp?

  They've already invested in the fab.

• 8:19Ben Thompson?

  Yeah, exactly. And so, so you have in general, this very customer-centric, customer-first mindset. Because that was literally the only thing they could sell. Combined with this low-cost mentality. That is, you know, that, that, that's what we have to offer. We don't have the fastest chips. We, we don't, you know, we don't have the, the leading-edge processes, but we, we're a reliable partner for you.

• 8:45Andrew Sharp?

  So culturally, is it a struggle then to be extracting crazy margins because of the way they began?

• 8:53Ben Thompson?

  Yes. That's basically it. So it's been a really difficult transition to go from that to being the leading edge.

• 9:03Andrew Sharp?

  Premium provider, yeah.

• 9:05Ben Thompson?

  This is one of the things that I've written about a fair bit. I think would have made a lot of great podcast material, but unfortunately you didn't care. But so one thing that was really, really interesting a few years ago was, so they had this model, you build a fab once, you run it forever. They incurred extra costs, I think this was two or three years ago, because what they said was, we're going to re, like basically rework some of our five nanometer fabs to be three nanometer.

• 9:34Andrew Sharp?

  Okay.

• 9:35Ben Thompson?

  And what's interesting about that is one of the challenges they have is they have these seven nanometer fabs that are still including their advanced sort of fab numbers. But they're a little bit stranded because they're, basically, there was a turning point somewhere around 14, 15, where the chips just definitely got more expensive. And if you didn't need it, if you didn't need the speed, if you needed the efficiency, you could just sort of stop. Actually, the biggest stopping point was probably 28 nanometers. There's just a lot of, and that's where China's really like invested a ton. And the chips are good enough and it's not worth the price premium to go to sort of the next step down.

• 10:14Andrew Sharp?

  I wonder about that on a more general basis when people talk about Taiwan invasion scenarios. Like if everybody had to run on iPhone 13 level chips, how many people would actually notice the difference between what we have now and what we had then?

• 10:30Ben Thompson?

  Well, no, you had, actually the problem is the opposite. The problem is, and I wrote about this a few years ago, when I think the chip ban went down, which is, my point there was people are thinking too much about the leading edge. The real issue is, there's all these legacy chips that the US has no capacity, I mean, global foundries might have some, something or other. But the reason they don't have it, why Intel doesn't have it, this is where, to go back to the five nanometer or seven nanometer story. Intel, because Intel was always on the cutting edge. That was their differentiation. And, and they internalized all the gains from that by, we could sell the fastest ships because we have the best manufacturing. But what they would do is when they went to the next generation,

• 11:14Ben Thompson?

  they would dismantle the old generation, or they tried to reuse as much stuff as they could going forward. They didn't keep fabs going on forever. But what that meant was if you have this five year depreciation, they needed to pay for the fab in that five years.

• 11:28Andrew Sharp?

  Yeah.

• 11:28Ben Thompson?

  So, but they could do that because they could charge very high margins.

• 11:31Andrew Sharp?

  They're taking margin.

• 11:32Ben Thompson?

  So they, yes, they would charge very high prices and pay for this. So what happened to TSMC is you have this overall market issue where like the 28 nanometer fab you built back in the day was the fastest of its time. But then it just became a great line that you could run for 40 years.

• 11:50Andrew Sharp?

  Yeah.

• 11:50Ben Thompson?

  And so that old model sort of worked. When you got down in this really, you really saw this happen with seven nanometer, where it was expensive because that was the first one to, to be using EUV. And it just wasn't worth it for

• 12:02Andrew Sharp?

  Most customers.

• 12:04Ben Thompson?

  For most customers.

• 12:04Andrew Sharp?

  Yeah.

• 12:05Ben Thompson?

  And so it kind of is a little bit of a stranded node to an extent. It's still used.

• 12:11Andrew Sharp?

  That makes sense because all the people who would pay to be on seven nanometer would then pay to be on five nanometer.

• 12:17Ben Thompson?

  They'd already moved on, right. And so this is what was so interesting about this announcement, oh, we're going to incur more costs to transition is that they had, they were, they had to become like Intel. They had to start thinking about actually these incredibly expensive fabs are not just cost way more, they're also shorter lived.

• 12:35Andrew Sharp?

  Yeah.

• 12:35Ben Thompson?

  We, we're not necessarily going to be able to run them forever and sort of get the money from it. Which means we have to raise, so it's, it was almost more of a bottoms up. We need to raise prices and make more margin.

• 12:48Andrew Sharp?

  Underwater on this seven nanometer investment or five nanometer.

• 12:51Ben Thompson?

  Right.

• 12:51Andrew Sharp?

  Any of these notes.

• 12:52Ben Thompson?

  Right. I mean, they're, they're not underwater to be clear.

• 12:54Andrew Sharp?

  Right.

• 12:54Ben Thompson?

  But, but the, but the problem is, is money you don't make is, you don't get it back. You don't get to go back to your, to Apple and say, three years ago, we probably should have charged you more.

• 13:02Andrew Sharp?

  Well, and these are just like tremendously expensive investments.

• 13:06Ben Thompson?

  Yeah, like, like the latest ones are like well into thirty billions, probably like the, the, those seven nanometer ones were probably like fifteen.

• 13:12Andrew Sharp?

  Yeah.

• 13:12Ben Thompson?

  Twenty or something like that. Um, I, I'd just point out a thin ear.

• 13:15Andrew Sharp?

  So if you're putting thirty million dollars or thirty billion dollars.

• 13:18Ben Thompson?

  Yeah, was I saying that? Yeah.

• 13:20Andrew Sharp?

  Million would be great.

• 13:20Ben Thompson?

  Big difference in M's and B's. Um, so, so what's interesting about this is, um, and that, so remember this is also combined with the overall, and this is a huge strength of TSMC. Very customer centric. They are a customer service organization. This is by far the hardest thing for Intel. And we'll get to the other thing for them to figure out.

• 13:39Andrew Sharp?

  Yeah.

• 13:39Ben Thompson?

  Is, is being customer first. But as part of that, they've had a natural disinclination to jack up the prices.

• 13:48Andrew Sharp?

  Mm hmm.

• 13:48Ben Thompson?

  Like, of, they would talk about this. Yes, of course, we need to raise prices, but we also are a common of a long-term relationship, da, da, da. And there's a bit about this where that's actually a good thing because they keep loyal customers. It's a big, you don't just swi- decide, I'm gonna go with Intel this time. Like, it's like a multi-year commitment to even go to another foundry.

• 14:08Andrew Sharp?

  Okay.

• 14:08Ben Thompson?

  So, so, but this sort of locks them in even more, right? But what happened was, and I, and this is all, just to be clear, this part is all, um, uh, what's the word I'm looking for?

• 14:20Andrew Sharp?

  Ben theory?

• 14:21Ben Thompson?

  Ben theory, um, maybe a tiny bit of, uh, scuttlebutt that, that, that sort of infuses this. What happened with this seven nanometer bit of stranding and then the, when three nanometer launched is they,

• 14:36Ben Thompson?

  you have this time period where they're by far in the lead.

• 14:39Andrew Sharp?

  Mm hmm.

• 14:39Ben Thompson?

  There are no alternatives. Their old model isn't quite working anymore. They need to switch to this model. And they did not raise prices nearly enough.

• 14:49Andrew Sharp?

  Hmm.

• 14:50Ben Thompson?

  And I think that might be what happened to the previous, previous CEO who became the chairman of the board. And suddenly retired. Uh.

• 15:01Andrew Sharp?

  Who was that?

• 15:01Ben Thompson?

  Mark Leal.

• 15:02Andrew Sharp?

  Okay.

• 15:03Ben Thompson?

  Uh, again, this is just sort of my theory. It was sort of a weird transition and thing that happened. What I think happened is TSMC. Insufficiently raised prices. It cost them a lot of money that's sort of gone forever. And it came from this sort of inherent customer centric, but also conservative, also bottoms up mindset. And this sort of bottoms up cost plus sort of thinking is very endemic to Taiwanese business culture.

• 15:33Andrew Sharp?

  Yeah.

• 15:33Ben Thompson?

  Like, and so whereas what, what TSMC to this emailer's point, what they need to do, you don't have to go like they needed to become more like Intel. They were forced into that in terms of how long they can depreciate their assets and having to learn how to reuse stuff. But that means you need to do it from a pricing perspective, too. People hated Intel, not just because they were arrogant, because Intel knew they were the best.

• 15:57Andrew Sharp?

  Putting the screws to them.

• 15:58Ben Thompson?

  And absolutely captured their value, right?

• 16:01Andrew Sharp?

  I'm glad that we don't have to lay the failure to raise prices at Morris Chang's feet because I love, I, the story of him coming out of retirement to lead the smartphone era of TSMC is one of my, I consider him.

• 16:14Ben Thompson?

  That is part of the story. No, that, that, that, I'm glad you brought that up because what happened there? You had, TSMC was in an increasingly strong position, not fully caught up to Intel, but caught up to Samsung in terms of the making arm chips. And sort of be, be, be in the, uh, third party foundry. And the great financial crisis happens, the world goes into recession and you have this conservative instinct to pull back happening.

• 16:40Andrew Sharp?

  Right.

• 16:41Ben Thompson?

  Boris Chang comes in, fires everyone and is like, this is the biggest opportunity this is like, this company's ever seen. We're investing into this and that's how this whole last 15 years happened. Now, is Boris Chang involved?

• 16:59Ben Thompson?

  I feel like if the once CEO, then chairman of the board. Ceremoniously retires at when he, I don't think was ready to retire. That might have more fingerprints on it. Um, yes, uh, again, this is pure conjecture. That's what we're looking for.

• 17:17Andrew Sharp?

  Okay.

• 17:17Ben Thompson?

  This is Ben conjecture. A tiny bit of like scuttlebutt. There might be something here, but nothing, I mean, it's not reporting. This is conjecture. Um, regardless about this timeframe, I was hammering on this in the daily update. I'm like, TSMC is screwing up their pricing and it's a problem for all. It's not just that, to the emailer's point, they have the opportunity. It's that the, their, the fundamental structure of their business is changing. They're becoming like Intel, whether they want to be or not, Intel in a positive sense. Where they're on the leading edge, they have to capture a margin much more upfront. They can't count on this trailing in the backend. They need to capture their value and they need to capture their value.

• 17:59Ben Thompson?

  Then the reason why it was so damaging, that five nanometer, three nanometer with the two nodes, I think were underpriced. That was the time there was no alternative.

• 18:06Andrew Sharp?

  Right.

• 18:07Ben Thompson?

  So, fast forward to today.

• 18:09Andrew Sharp?

  That well, okay, that was gonna be my question because when we had a conversation along these lines, like two and a half years ago. You talked about Nvidia wanting to second source, or at least have another player that they could pit against TSMC.

• 18:24Ben Thompson?

  Which they did, which they always did. Like their previous generation, or a few generations ago, uh, was the AMPER generation. Like they did like the gaming chips with Samsung and then like the, the server chips with TSMC.

• 18:34Andrew Sharp?

  And that's how Nvidia was able to keep TSMC from extracting too much margin in the value chain. Is there anybody who can play that role today? Or is it basically just TSMC that's able to serve the AI demand right now?

• 18:50Ben Thompson?

  Well, this is, this is where it gets really interesting and this is what I was writing about this week. So.

• 18:57Ben Thompson?

  The issue is TSMC is the best, still the best, probably will continue to be the best. There's certainly like rumblings about Intel, about 14A maybe being good. But even there, it take like to commit to Intel today is not going like you're not going to have chips coming off the line for like three or four years.

• 19:16Andrew Sharp?

  Yeah.

• 19:16Ben Thompson?

  Like it's it's maybe now, again, people might have already committed, it's not announced, so that this sort of could happen sooner. Um, or same thing with sort of Sam, it's not a trivial thing to sort of map a chip on onto a new process.

• 19:29Andrew Sharp?

  Mm hmm.

• 19:29Ben Thompson?

  Um, and again, if TSMC is there and willing and the best, like, why would you want, why would you want to go somewhere else?

• 19:37Andrew Sharp?

  And take that risk with three or four years out.

• 19:39Ben Thompson?

  Exactly. Um, the issue, however, is that I think it's fair to say it's clear now.

• 19:48Andrew Sharp?

  Mm hmm.

• 19:48Ben Thompson?

  That the sort of conservatism that Morris Chang fired everyone for in 2008.

• 19:55Andrew Sharp?

  Yep.

• 19:56Ben Thompson?

  And the conservatism that led to them underpricing four or five years ago.

• 20:02Andrew Sharp?

  And perhaps in early.

• 20:03Ben Thompson?

  Has pro, it has manifested itself in their CapEx.

• 20:07Andrew Sharp?

  Okay.

• 20:09Ben Thompson?

  And what I mean is there after ChatGPT happened, there was a choice to make, which is, uh, how much demand do we think there's going to, so this is what, wait, 2022? How much demand do we think there's going to be in 2025 and 2026? And TSMC has been, was relatively conservative. And the net result is because these decisions, this is the whole, what's so hard about semiconductors, because decisions are made years ahead of time.

• 20:40Andrew Sharp?

  Yep.

• 20:41Ben Thompson?

  The issue is that there just isn't nearly enough capacity at TSMC for all the demand.

• 20:47Andrew Sharp?

  Mm hmm.

• 20:48Ben Thompson?

  And and everyone's sort of stuck because.

• 20:52Ben Thompson?

  To go somewhere else is going to take a few years. But at the same time, but but TSMC is not there and also the other ones aren't good enough. And so everyone, you had this whole thing last year of like Sam Altman visiting Taiwan and Jensen's here and everyone's like, they're basically coming to TSMC saying, please invest more.

• 21:12Andrew Sharp?

  Hmm.

• 21:12Ben Thompson?

  And the but the tricky thing is the invest more isn't about 2026. The invest more is about 2028 and 2029.

• 21:19Andrew Sharp?

  Yeah.

• 21:20Ben Thompson?

  So TSMC comes out, the reason why this is a big deal for earnings is they announced their capex plans. And they announced, I think between 52 and 56 billion dollars they'll spend on capex this year. A lot of money.

• 21:33Andrew Sharp?

  Mm hmm.

• 21:34Ben Thompson?

  This year, they spent 41 billion dollars. I think last year they spent 30 billion dollars. Which was way too low. Like the last three years was real or probably the 2022 to 2024 errors were particularly too low. And this raises a really, really interesting question for all of the TSMC customers. Is 52 to 56 billion in a context of prices up in general, all the equipment is so that's not, it's not a linear increase in capacity.

• 22:05Andrew Sharp?

  Okay.

• 22:05Ben Thompson?

  It's like the curve bends in the wrong way because just stuff in general is sort of more expensive. Is that enough?

• 22:13Andrew Sharp?

  Is it enough?

• 22:14Ben Thompson?

  In 2028 and 2029?

• 22:16Andrew Sharp?

  Doubling it, is that enough? Yeah.

• 22:18Ben Thompson?

  Well, but they're not doubling it. It's like a 50, it's like from last year, it's like a 25% increase.

• 22:23Andrew Sharp?

  Okay.

• 22:24Ben Thompson?

  So.

• 22:24Andrew Sharp?

  I thought it was 30 billion and now it's 52.

• 22:27Ben Thompson?

  No, it's 41, 41 in 2025, 30 billion and like around the 30 billion mark in the years before that.

• 22:33Andrew Sharp?

  Mm hmm.

• 22:33Ben Thompson?

  So even from there, it's like a 67% increase.

• 22:36Andrew Sharp?

  Yeah.

• 22:37Ben Thompson?

  And the reason and the problem is that TSMC, the reason why TSMC is is nervous.

• 22:46Andrew Sharp?

  Mm hmm.

• 22:46Ben Thompson?

  Is think about the this timeline.

• 22:49Andrew Sharp?

  It's reasonable to be nervous.

• 22:51Ben Thompson?

  Right. So if you show up, i- if there's the bubble burst, say we 2029 is three years away. I keep reading it's 2026. The bubble bursts in 2028.

• 23:02Andrew Sharp?

  Mm hmm.

• 23:03Ben Thompson?

  You've spent that, all that money and you spent money next year and after that, and suddenly you have fabs with all this equipment you spent that no one needs or wants the chips from.

• 23:15Andrew Sharp?

  Yeah.

• 23:15Ben Thompson?

  And, and, and that is like-

• 23:16Andrew Sharp?

  That's the risk of their business is it's so capital intensive that if the demand ebbs along the way-

• 23:23Ben Thompson?

  You like, you're either extremely profitable or you're just not profitable at all, right? It's a big like-

• 23:28Andrew Sharp?

  That's what I bet you with them being underwater, like you could really struggle uh in fall years.

• 23:34Ben Thompson?

  But, but that, but the, the issue is, but the problem, so, so TSMC is trying to reduce that risk.

• 23:41Andrew Sharp?

  Mm hmm.

• 23:42Ben Thompson?

  Risk doesn't disappear from the system. That risk is being offloaded to TSMC's customers.

• 23:51Andrew Sharp?

  How so?

• 23:51Ben Thompson?

  Whether that be Nvidia or Microsoft or Google or whoever it might be.

• 23:56Ben Thompson?

  Because what does every single CEO say on their earnings call?

• 24:00Andrew Sharp?

  I don't know. I don't listen to nearly as many earnings calls as you do.

• 24:05Ben Thompson?

  They say if we had more capacity, we would have sold more.

• 24:09Andrew Sharp?

  Hmm.

• 24:09Ben Thompson?

  The, the risk that TSMC is offsetting is foregone revenue for all these companies.

• 24:15Andrew Sharp?

  Right.

• 24:16Ben Thompson?

  And all these companies are realizing that risk right now. When you, every earnings call, when a CEO is on there saying so, demand vastly exceeds supply. What that is, is foregone revenue. That revenue is gone forever. And that revenue is downstream from TSMC not having enough capacity.

• 24:34Andrew Sharp?

  Right. Well, and it's so is TSMC, I mean, by themselves, are they gating the AI infrastructure build out?

• 24:43Ben Thompson?

  This is why I called them, no, I called it the TSMC break. Like I came up with that last year. Um, I should have wrote a bigger, maybe I'll write a big article. Because I think it is, it's like they are the break on, on a bubble, on, on sort of AI sort of generally.

• 24:57Andrew Sharp?

  Well, no, I, when you wrote it last year, it didn't fully register with me. And then I read it earlier this week and I was like, oh, he's making a play on accelerationists and TSMC. They're the ones that are the brakes in the middle of all this. And it really is fascinating when you step back and look at the ecosystem and think about how much crazier the numbers could be if TSMC could serve the capacity in the middle of all of it.

• 25:20Ben Thompson?

  That's exactly right. So, so all these, so the issue is that all these folks who- They think they're de-risking by sticking with TSMC.

• 25:31Andrew Sharp?

  Mm hmm.

• 25:31Ben Thompson?

  Because it's the known entity. They have good customer service. They have confidence it's gonna work.

• 25:35Andrew Sharp?

  Ceiling on how much they can produce.

• 25:37Ben Thompson?

  They have been.

• 25:38Andrew Sharp?

  Ceiling on how much you can make.

• 25:39Ben Thompson?

  They actually have been loading on fab risk to themselves.

• 25:43Andrew Sharp?

  Mm hmm.

• 25:43Ben Thompson?

  And that risk they're loading on to themselves is forgone revenue.

• 25:47Andrew Sharp?

  Yeah.

• 25:47Ben Thompson?

  Which is being realized right now. And you could imagine if, if, if AI progresses like people thinks that it will, in 2028, 2029, where thi- thi- this mismatch between supply and demand, 52 billion is not nearly enough.

• 26:02Andrew Sharp?

  Interesting. Yeah.

• 26:03Ben Thompson?

  And so you're actually loading up on risk. So, so.

• 26:08Andrew Sharp?

  I'm glad you said that because reading your update earlier in the week, I was reading it early in the morning and I was like, does Ben, it seems like Ben has, thinks that they should be investing a lot more in capex build out than they actually are. And it sounds like that was an accurate reading of the subtext of your analysis.

• 26:28Ben Thompson?

  I think that TSMC is doing what is right for TSMC.

• 26:33Andrew Sharp?

  Okay.

• 26:34Ben Thompson?

  And they're able to do what is right for TSMC because they don't have any competition.

• 26:38Andrew Sharp?

  There's no competition. Yeah.

• 26:40Ben Thompson?

  What I think behooves everyone in AI to do is they have to get Samsung and Intel.

• 26:49Andrew Sharp?

  Mm.

• 26:50Ben Thompson?

  On board.

• 26:51Andrew Sharp?

  So Intel's not just a charity case in this scenario. Okay.

• 26:56Ben Thompson?

  Well, I mean, this is been, but I think like making this clearer than ever. I should have made this a poker card. Maybe I'll write another one. Like, like, like, they need to.

• 27:07Ben Thompson?

  Because what happens if Intel is a credible alternative or Samsung is a credible alternative? What happens is what becomes TSMC's greater fear?

• 27:18Ben Thompson?

  Is it five years from now, we might have this overhang? Or is it we're losing business to Intel and to Samsung? And we know, once someone switches, it's hard to get them back because of this long sort of cycle.

• 27:33Andrew Sharp?

  And right now, the risk to TSMC of under-investing in CapEx build-out is, okay, we're gonna make less profit in three or four years than we might have otherwise, but we're offsetting that risk against like tremendous downside risks if the bubble bursts. So we're happy splitting the difference with a 67% increase as opposed to 167% increase. That's their logic and the way they view this. Is that right?

• 28:03Ben Thompson?

  That's right. And the way, and so in-

• 28:06Andrew Sharp?

  But it that-

• 28:07Ben Thompson?

  What they're doing is they're offloading risk onto their customers, right?

• 28:11Andrew Sharp?

  And there's a much bigger risk if they get five or six years down the line and half of their customer base is working with other competitors.

• 28:19Ben Thompson?

  Well, what you want, if you're a Google or a Microsoft or an Amazon or an OpenAI or an Anthropic, you want cheap chips.

• 28:27Andrew Sharp?

  Mm-hmm.

• 28:28Ben Thompson?

  The way you get cheap chips is by there being too much capacity and they're having to sell it at very low prices.

• 28:34Andrew Sharp?

  Yeah.

• 28:35Ben Thompson?

  The way you get more capacity is you have everyone overbuild. You're not go- like you, you want overbuilding. Like you, you want TSMC facing-

• 28:47Andrew Sharp?

  That's why Sam flew to Taiwan.

• 28:49Ben Thompson?

  No, Sam's totally wrong.

• 28:51Andrew Sharp?

  Oh.

• 28:52Ben Thompson?

  I interviewed Sam in the fall and pushed him on this, like you need to be exploring Intel. And he doesn't want to do that because everyone's a little scared of TSMC. Because TSMC has limited-

• 29:05Andrew Sharp?

  They have limited capacity, so they can play favorites.

• 29:08Ben Thompson?

  That's right. That's right. But the problem is that, the issue is, you're getting, you're enabling the break. It's like, like the B R A K A K E, the slowdown.

• 29:20Andrew Sharp?

  Yeah.

• 29:20Ben Thompson?

  And, and the issue, like what needs to happen is people need to- Intel and Samsung are not going to get there without customers actually- Going for it with them.

• 29:31Andrew Sharp?

  Okay.

• 29:31Ben Thompson?

  They need this customer base. And the reason to do it is it shifts the risk back to the foundries. You want the foundries taking risk. You want them building for a huge explosion. The worst case scenario is you get super cheap chips because they've built too much capacity.

• 29:49Andrew Sharp?

  Mm hmm.

• 29:49Ben Thompson?

  That's a good situation. And, and you're not going to get there. All these companies need to sack up and stop playing like they're, they're, they need to think about.

• 29:58Andrew Sharp?

  Clear eyed recognition would be TSMC is just not going to go that direction unless they're forced to.

• 30:05Ben Thompson?

  You're flying to TSMC and begging them to put their business a little bit more at risk for your sake.

• 30:12Andrew Sharp?

  Mm hmm.

• 30:12Ben Thompson?

  No, what you need to do is you need to go out and you need to empower and enable a actual competitor for TSMC. That's how you get more TSMC volume. And by the way, that competitor comes online, there's more volume for everyone. That means lower prices. That means you can actually start like, like create chips. And your capital costs are lower and you can actually not have these insane bills.

• 30:39Andrew Sharp?

  Yeah.

• 30:39Ben Thompson?

  That all these, that all these companies do.

• 30:40Andrew Sharp?

  This is great stuff. You really should have made that update public. Bad job by you.

• 30:45Ben Thompson?

  Yeah. Oh, ready to get on Monday.

• 30:47Andrew Sharp?

  Well, I have one question on TSMC, big picture and like potential risks that they incur in the midst of all this. How much of their revenue comes from like three customers at this point? Like it's Nvidia, Apple, uh.

• 31:01Ben Thompson?

  AMD.

• 31:02Andrew Sharp?

  Okay, AMD. And I mean, like in the AI space.

• 31:05Ben Thompson?

  Well, I mean, everyone in the world faves that, at, at.

• 31:09Andrew Sharp?

  TSMC.

• 31:10Ben Thompson?

  Their issue right now is, is not that they have window of customers. It's that there's too many customers and people are by no choice having to at least consider alternatives. Because there's not enough, that, that, you know, that's, so there's a two part thing. Number one, they don't want to raise too, prices too high because people could leave. But they also need to have enough capacity so that people don't leave because they can't get leading edge chips.

• 31:35Andrew Sharp?

  Get what they need. Yeah.

• 31:36Ben Thompson?

  So, um, but the issue is that. You don't, it's like all these folks who claim to be big capitalists are not, are like, they're being chickens. They're not taking the risk of trying to get an Intel going, to get a Samsung going. Because, so they're, they're thinking about their short-term risk of what if, you know, might be expensive, what if it doesn't work, what if there's a delay?

• 32:00Andrew Sharp?

  And what if TSMC gets upset and starts playing with our supply?

• 32:03Ben Thompson?

  What they're not thinking about is the long-term, like, there is a scenario where we, no one does this. We get to 2028, 2029, and this entire opportunity is, actually, what actually ends up bursting the bubble is there are not enough chip capacity. Like, this entire opportunity is sort of, uh, killed off because no one was, everyone was being chickens in 2025.

• 32:29Andrew Sharp?

  Yeah. Or there's a war.

• 32:32Ben Thompson?

  Another reason, another reason to, uh, build up alternatives, yes.

• 32:36Andrew Sharp?

  Yeah, um, well, Eddie, final thoughts on TSMC before we shift to Netflix here?

• 32:42Ben Thompson?

  Like, if you can't get Morris Chang to give them a kick in the rear end and take the risks, uh, you get sort of Mr. Market. Like, that, that, that's the answer. Um, and we'll see, but this is, this is the time now. The time now is to make decisions for 28, 29. And I think there's a bit about tech companies are uncomfortable thinking that far in the future. Even though, like, software, you, obviously, it takes a long time to build, but things like this, like, meaningful capex investments, it's almost like a new muscle for Silicon Valley. Like, just assume, you've always been able to assume the hardware is there.

• 33:19Andrew Sharp?

  Right.

• 33:20Ben Thompson?

  Right? And especially with the rise of the cloud and sort of being able to rent. But there needs to be this development and this...

• 33:30Ben Thompson?

  Increased appetite for risk.

• 33:32Andrew Sharp?

  Mm hmm.

• 33:32Ben Thompson?

  Because you're actually risking more by not thinking about it than you might realize.

• 33:38Andrew Sharp?

  Risking foregoing profits. It's it's an interesting corner of the space, though, because even TSMC, it's hard to chart a course for where all of this is going to be and whether the bubble will or won't burst and whether the demand will or won't be there.

• 33:55Ben Thompson?

  Right, but that risk.

• 33:56Andrew Sharp?

  Four years.

• 33:57Ben Thompson?

  But you want to put that risk on the foundries. The way you force.

• 33:59Andrew Sharp?

  Well, if you're one of the AI companies, of course you do, but it's a fascinating aspect of the whole discussion because they're the ones that really do have to think about the end of the decade as they're making decisions today. Uh, TSMC, that is, in addition to.

• 34:14Ben Thompson?

  But if you if you're an AI company, you need to think about the end of the decade, too. Because you're going to show up at the end of the decade and not be making nearly as much revenue.

• 34:21Andrew Sharp?

  That's true. I mean, Sam Altman in his interview with you is is making all these investments today for what demand will look like in 2028.

• 34:28Ben Thompson?

  Again, over and over again, we don't have enough compute, we don't have enough compute, don't have enough compute. Well, then.

• 34:32Andrew Sharp?

  Or we want to be ready when there's even more demand than there is today.

• 34:35Ben Thompson?

  Right, um, and.

• 34:37Andrew Sharp?

  They're not taking the steps they need to take.

• 34:39Ben Thompson?

  Way is is.

• 34:40Andrew Sharp?

  Short sighted.

• 34:41Ben Thompson?

  Yeah, well, it's, yeah.

• 34:43Andrew Sharp?

  All right, well, um, on that note, we can shift gears and go to Netflix because you interviewed co-CEO, Netflix co-CEO Greg Peters this week.

• 34:54Andrew Sharp?

  All right, and that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharp tech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Surtakri and the Surtakri Plus bundle. Check it out, and if you've got feedback, please email us at email at sharp tech.fm.