Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Monday.
Today is Monday the 20th.
On Friday we talked about Elon Musk's chip ambitions and the new AI5.
Two thirds of Tesla's entire business model is robo taxis and Optimus robots.
You can check the pay package the board approved — just one third is EVs.
The other two thirds are robots and robot taxis.
And both of those things run on the AI5 chip.
This chip is the engine underneath everything Elon is building toward.
How Chips Actually Get Made
Most people don't understand this, and it's worth taking two minutes to explain.
Making a chip is actually a three-step process.
Step One: Design
Nvidia doesn't manufacture chips any more than Nike manufactures sneakers.
Nike designs the shoe and sends it to China to be made.
Nvidia designs the chip and sends it to Taiwan to be made.
Apple designs a chip and sends it to Taiwan.
AMD does the same thing.
They are all designers, not manufacturers.
Step Two: Manufacturing
This is what Taiwan Semiconductor — TSMC — does.
TSMC is one of the most critical companies in the world.
90% of the world's advanced semiconductors are manufactured there.
Even the chips inside our F-35 fighter jets are made in Taiwan.
This is why Taiwan is modern-day oil.
If China ever took Taiwan, we would have a very serious problem.
Step Three: Packaging
This is the step most people don't know about.
And this is where our opportunity is.
After TSMC manufactures the individual semiconductor components, they hand them to what are called packagers.
These companies take all the individual components and assemble them into a finished chip — something like a GPU.
This used to be a simpler business.
In the age of AI, it has become extraordinarily sophisticated.
The best packagers assemble these components in ways that allow them to operate faster, cooler, and more power efficiently.
That makes for a dramatically more effective AI chip.
The Company Nobody Is Talking About
Everybody knows about Nvidia — the design phase.
People who follow this carefully know about TSMC — the manufacturing phase.
Almost nobody knows about the packaging phase.
But there is one company that has quietly become the go-to packager for Nvidia, Qualcomm, Apple, Google, and now Elon's AI5 chip.
Every major player in the AI chip race depends on them.
And almost no one is talking about it.
I'll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine