Nvidia ( NASDAQ:NVDA ) is making a major shift in its AI chip packaging strategy, transitioning from CoWoS-S to CoWoS-L as it scales up production of its next-gen Blackwell chips. CEO Jensen Huang made it clearthis isn't about cutting capacity. It's about cranking up output to meet surging demand. Taiwan Semiconductor Manufacturing Co ( NYSE:TSM ) remains a key player in the equation, but industry analyst Ming-Chi Kuo has flagged potential disruptions for suppliers caught in the transition.

Despite Taiwanese media reports suggesting Nvidia is scaling back CoWoS-S ordersraising concerns about a hit to TSMC's revenueBlackwell chips are still flying off the shelves as fast as TSMC can produce them. Packaging remains the bottleneck, but Huang reassured investors that Nvidia has quadrupled its advanced packaging capacity in just two years. The takeaway? Nvidia isn't slowing downit's doubling down on AI dominance, refining its supply chain to stay ahead of the competition.

But there's a wildcard: geopolitics. U.S. export restrictions continue to cast a shadow over AI chip sales, limiting shipments to most countries except key U.S. allies, including Taiwan. Huang dodged questions on this front, leaving investors to weigh the regulatory risks. With Nvidia's supply chain evolving and demand still outpacing production, all eyes are on TSMC to see whether it can keep upor if this packaging shift signals a broader realignment in the AI chip race.

This article first appeared on GuruFocus .