Hidden beneath AI chips, Chinese-made circuit boards raise national security concerns in U.S.

Printed circuit boards sit underneath almost every chip, a necessity in nearly every electronic. They make up a quiet but crucial piece of the booming artificial intelligence market, and represent a growing problem for the U.S., because nearly all AI circuit boards, for Nvidia and others, are made in China.

Circuit boards present all sorts of opportunities for adversaries to sneak through malicious components. That vulnerability has created national security concerns so significant that the U.S. Defense Department is requiring most of its purchases to come from the dwindling number of domestic factories.

"Chips, substrates, PCBs represent multiple avenues of attack for a potential malicious actor," said Mike Cadenazzi, U.S. assistant secretary of war for industrial base policy, in an interview with CNBC. Worst case scenario, he said, a compromised PCB could mean a "missile malfunctions in flight."

Some 30% of the world's supply of printed circuit boards, or PCBs, used to come from the U.S. That number has dropped to just 4%, according to the Printed Circuit Board Association of America, or PCBAA. Domestic capacity can't keep up with state-sponsored manufacturers in China, where material and labor costs are also lower. PCBAA executive director David Schild said six of 10 PCBs are now made in mainland China, which he described as a "risky dependency."

Former U.S. deputy under secretary of defense Al Shaffer, who helped make technology acquisition decisions in the Obama administration and in President Donald Trump's first term, says PCBs are the "easiest place to disrupt an electronics chain" because of the ability to hide things in substrates and layers.

The U.S. government is now weighing subsidies to boost domestic PCB manufacturing, with lawmakers in both chambers of congress introducing legislation involving financial incentives for building and buying American. Those efforts coincide with rising tensions between the U.S. and China in their battle for AI supremacy. In April, the Trump administration accused Chinese entities of waging "industrial-scale campaigns" to rip off U.S. AI systems, and said it will explore ways to hold foreign actors accountable.

But national security isn't the only concern. There also just isn't enough supply to meet AI and defense demand.

TTM Technologies and Sanmina are the only two public companies that make PCBs in the U.S. They're experiencing soaring growth, alongside the rest of the AI hardware trade. TTM shares are up almost 500% in the past year, while Sanmina's stock has more than tripled.

The companies are struggling to keep up with military demand amid ongoing wars in the Middle East and Ukraine. The Iran War has also kept the supply of some key raw materials from getting out of the region. Nvidia supplier Victory Giant in China, one of the world's largest PCB makers, warned in April that the Middle East conflict could push up prices of key ingredients copper and resin.

PCB prices rose by up to 40% from March to April, according to a Goldman Sachs note cited by Reuters. TTM told CNBC in May that it's increasing prices by between 5% and 25%.

"We are competing with the AI demand," TTM's Cathie Gridley, an executive vice president, told CNBC in an interview. "The commercial side is willing to pay a much higher price to get access to that capacity, and so what that does is that really drives prices up across the board."

In an effort to solve the capacity problem and assist the U.S. in its effort to catch China, TTM is rapidly expanding its domestic footprint with a new factory in Syracuse, New York, where production will start soon, and an even bigger plant in Wisconsin also getting off the ground this year. When they're up and running, TTM will have seven factories in Asia, with its biggest still in China, and a total of 18 in the U.S.

'Chips don't float'

CNBC toured TTM's original and most advanced U.S. facility, in Santa Ana, California, to see how PCBs are made and find out how the U.S. is trying to catch up with China.

TTM doesn't disclose its customers, but CEO Edwin Roks told CNBC the company is supplying "the big guys" in AI. That category would include companies like Nvidia, Google and Apple, because whether it's a tiny AirPod or a 2-ton Nvidia Vera Rubin server rack, no chip can operate in a system without being connected to a substrate or PCB.

The global PCB industry is projected to grow 12.5% this year, reaching nearly $96 billion, and expanding to $123 billion by the end of the decade, according to electronics research firm Prismark Partners.

Circuit boards can be made up of anywhere from one to 140 layers and can range in price from the single digits up to $100,000, according to TTM.

"Moore's Law is getting to an end," Roks said, referring to an observation from the 1960s that the number of transistors would double roughly every two years — delivering more computing power while lowering costs. "You cannot increase the complexity of these chips any more, so you need to combine these chips, and that's what we do."

Gridely, who oversees TTM's aerospace and defense business, said PCBs are essential because chip technology can't reach devices without them.

"Chips don't float," Gridely said. "They have to mount on a board in order for that entire package to work successfully."

After a wafer comes off the factory line and gets packaged into larger chips, like Nvidia's graphics processing units, those need to be attached to a circuit board that's printed with a map of where each one goes.

That "bare board" is created by pressing many layers together into one panel, and the layers are made with increasingly scarce materials like copper and resin, and precious metals like gold, palladium and immersion tin.

"There are a number of suppliers where we may only have one source of supply, like copper foil, in the United States," Gridley said. "And if anything were to happen to that one supplier, it would cripple the industry."

More layers means more room for creating dense pathways that electrical signals travel through, so multiple chips can communicate with each other and send signals out to the broader system. Chips and circuitry are added in a separate assembly process, with each item bonded to a resin substrate or melted onto pads on the PCB using solder balls.

The process takes up to six months, and requires a lot of power and water. Globally, TTM used as much power as 70,000 homes, and 2.1 billion gallons of water in 2024. The company says it's now aiming to use 60% renewable energy and recycle 35% of the water used.

Nearly three-quarters of PCBs made at TTM's biggest standalone China plant end up in data centers. However, at TTM's California plant, 71% end up in aerospace and defense products. Defense electronics will be legally required to come from the U.S. under new legislation starting next year.

Senators from both parties also introduced the Protecting Circuit Boards and Substrates Act in May, which offers a 25% tax credit to companies that choose American-made circuit boards. A companion bill in the House calls for $3 billion in grants for U.S. manufacturers. Both bills are currently under consideration, as part of an effort by the U.S. government to help level the playing field against Chinese companies that are heavily subsidized by Beijing.

"Some of our adversaries have very sophisticated modes of attack," said DOD's Cadenazzi. He gave examples of how certain mechanisms could be introduced to "siphon off data" back to China, decrease performance of the system, or interfere with weapons.

"A particular code is enabled and then all of a sudden, the PCB, in combination with the chip, make a decision to actually disrupt the guidance of the munition and it lands in the wrong location," he said.

Roks described the possibilities as "very scary," and said that's why "it has to be in the U.S. and soon it has to be in Europe."

Nvidia and its assembly partners mitigate risk by physically inspecting all PCBs, using X-rays and AI-enabled image detection tools to look for anomalies. Nvidia declined to comment for this story.

**'The numbers need to pencil out' **

Shifting production to the U.S. requires investment, and tech's megacaps need to prove to Wall Street that it's a profitable move in the long run.

The PCBAA's Schild said many executives "indicate that risk is a part of their cost analysis," and say they see the need to diversify.

"But of course, the numbers need to pencil out," he said. The PCBAA says circuit board factories cost between $250 million to $400 million to build.

In addition to TTM's domestic development, Sanmina, is expanding at its two manufacturing sites in California, as well as in China and Singapore.

There's also a growing list of startups trying out innovations that could help. Quilter, founded by a former SpaceX employee, uses AI to design increasingly complex circuit boards. And Itera is making a "fluid" circuit board that can be rapidly rewired to reduce the need for so many new boards.

"The best thing we can do is develop a robust domestic PCB industry that starts to be competitive against subsidized pricing from our competitors and provides options for these firms to buy domestically in a more resilient way from trusted partners," Cadenazzi said.

WATCH: As AI Booms, The U.S. Confronts A Risky Dependence On Chinese Circuit Boards