How the Iran war is raising costs for AI chip companies

The AI rally continued this earnings season. But companies building the underlying hardware powering the boom warned that the Iran war is putting pressure on their supply chains and profitability.

A spiraling conflict in the Middle East has seen oil prices skyrocket and supply chains crucial to the tech sector hamstrung. Shortages of key chipmaking materials, including helium, are expected as the U.S. and Iran remain locked in a standoff.

TSMC, which manufactures Nvidia chips, said the situation in the Middle East could impact its profitability, with prices for certain chemicals and gases likely to increase. Foxconn, the world’s largest contract electronics manufacturer, singled out events in the Middle East as a key challenge this year. Chipmaker Infineon said costs would rise for precious metals, energy and freight as a result of the war.

The companies’ situation could get worse, Francisco Jeronimo, analyst at IDC, told CNBC.

“We can expect further negative impact this year…the price of gas, energy and freight are at an all-time high and are likely to remain high for a few more quarters, even if the situation de-escalates,” he said. “Even with a potential ceasefire, the supply-side damage doesn’t improve overnight.”

Access to other materials crucial to the semiconductor manufacturing process, such as bromine and aluminium, have also been impacted. In March, chip buyers in Europe were paying more and tapping backup stores as the war disrupted air freight.

Chip companies “all understand they need to diversify to be less dependent on a specific region,” said Jeronimo. From a short-term perspective, TSMC is building inventory buffers and diversifying sourcing, he added.

The Taiwanese chipmaker’s strategy was “to continuously develop multi-source supply solutions to build a well-diversified global supplier base and to improve the local supply chain,” Chief Financial Officer Wendell Huang said on an earnings call in April.

VAT Group, which supplies components to chipmakers, said it experienced supply chain disruption and had to reroute shipments of goods to customers as a result of the war. While the company said it expected no material impact on its 2026 full-year outlook, sales for its first quarter took a hit of 20-25 million Swiss francs ($25.5 million to $32 million), the company reported.