TSMC won’t and can’t ever reach margins of Nvidia because TSMC offers only foundry services to many different companies.

If TSMC rises pricing on wafers and packaging too much because of the boom Nvidia has then it becomes an issue for other customers. Not every customer has Nvidia’s earnings. At the same time, IF TSMC gives different pricing to different customers for the same product then it will be a huge problem in using monopoly status by TSMC.

Nvidia’s margins contain a complete value chain of a data center including SW bundles. Many things TSMC doesn’t do and offer.

Besides, wafer pricing is contracted for years in advance. TSMC couldn’t anticipate that Nvidia would need much more capacity and as I said above is in a delicate situation. They can rise pricing but have to keep other customers in mind. TSMC certainly doesn’t want to be Nvidia foundry only, right? But if in the end, if only Nvidia can afford TSMC easily (see their earnings strength) then it would lead to exactly that.

Interestingly, for Nvidia it would be best if TSMC would double pricing as it would cripple competition way more than Nvidia. AMD for example can’t afford rising pricing vs. Nvidia offerings. The margin hit for AMD might be much more severe than for Nvidia and while Nvidia would still earn a lot, AMD might get into losses with their DC GPUs. As a Nvidia investor, I would welcome TSMC being the proxy to crush Nvidia competition by making foundry services to expensive for Nvidia’s competition.

Which means TSMC has left considerable money on the table.

Add in the wide variation in quarter-to-quarter deliveries and therefore revenue, it seems to me that TSMC is going to have to substantially change their approach to pricing, with a view to externalizing some of their (revenue) risks and capturing more of their customer’s revenue. Having a substantial piece of the foundry market, and as you say, the extended market, gives them something called pricing power.

Look up the definition of “pay or play”. I suspect some customers are going to have to be paying whether they accept deliveries or not. That would substantially smooth out TSMC’s quarterly revenue streams and vastly improve their longer term outlook. A foundry with a solid and credible three-year revenue forecast would be unbeatable. Look out Intel and Samsung!