Morgan Stanley recently made a pointed observation: “We don’t think power is the constraint for TSMC’s chip demand, at least for 2027 – but ABF substrate and HBM supply are major gating factors.”
In plain English – the AI chip boom isn’t going to be slowed down by electricity. It’s going to be slowed down by ABF substrate.
The chips exist. The demand exists. The data centres are being built. But if there isn’t enough ABF substrate to package those chips, they simply don’t ship.
So, what exactly is ABF substrate?
Think of a modern AI chip as a city.
The processor is the CBD, where all the action happens. But a city can’t function without roads, bridges, and infrastructure connecting everything together. ABF substrate is that infrastructure.
It’s a thin, rigid layer that sits between the chip itself and the circuit board it lives on. Its job is to carry electrical signals between the two – precisely, reliably, and at extraordinary speed. The more powerful the chip, the more layers of ABF it needs, and the finer the wiring within those layers has to be. We’re talking about copper lines as thin as 5 microns. A human hair is roughly 70.
What makes ABF special is its stability. It doesn’t expand or contract meaningfully when temperatures change, which matters enormously when you’re running a chip hard inside a data centre.
It’s also uniquely receptive to laser processing, which is how those impossibly fine wiring patterns get etched onto its surface. No other material does this as well. That’s not marketing. That’s why the industry hasn’t moved on.
Why it matters right now
This is a structural supply problem, not a temporary one. Building an ABF substrate factory takes years. The equipment is specialised. The knowhow is fiercely protected. New entrants face an almost vertical learning curve.
That’s why the same handful of companies have dominated this market for decades, and why chipmakers like Intel, AMD and Nvidia have reportedly co-funded capacity expansions at key substrate makers just to secure their own supply.
The market tells the same story. ABF substrate was a $4.9 billion market in 2024. It’s projected to reach $9.5 billion by 2032.
Who controls the supply
The market is tightly held.
Five companies control roughly 74% of global ABF substrate production – Unimicron and Nan Ya PCB in Taiwan, Ibiden and Shinko Electric in Japan, and AT&S in Austria. Unimicron leads with around 22% market share.
But the most unusual position in this entire supply chain belongs to Ajinomoto itself. They don’t make the substrates. They make the film that goes into the substrates. Every single ABF substrate manufacturer in the world buys their film from Ajinomoto. There is no alternative supplier.
For investors, the lesson here isn’t necessarily to rush out and buy any particular stock. It’s to understand where the real constraints in the AI supply chain sit, because that’s where pricing power lives, that’s where margins hold up, and that’s where the market tends to be least crowded.
Everyone is watching the likes of Nvidia, AMD etc. Not enough people are watching what goes inside the chip before Nvidia ships it.
That’s usually where the interesting money is made. If you’d like to keep up with what’s happening in this space make sure you are signed up to South African Investor.
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