Nvidia's AI Profit Dominance Faces Challenge from Taiwan Semiconductor

Nvidia Corp (NASDAQ:NVDA) has built one of the most profitable businesses in the AI boom without owning the fabs that manufacture its chips. The company reported a 71.1% gross margin for fiscal 2026, highlighting the significant economics accumulated at the chip-design layer.

Josh Kaplan, who manages the MVSMH index underpinning VanEck Semiconductor ETF (NASDAQ:SMH), notes Nvidia's dependence on foundries like Taiwan Semiconductor Manufacturing Company Ltd. (NYSE:TSM) to turn designs into finished silicon.

Kaplan points out that TSMC has significant leverage in controlling capacity, which is essential for translating AI chip demand into actual shipments. This imbalance creates a potential shift in where the semiconductor industry's economic profits land.