Several chipmaker stocks rose Thursday on optimism about AI demand in Taiwan Semiconductor Manufacturing Company’s (TSM) third-quarter earnings.
After underperforming the broader market earlier this week, the PHLX Semiconductor (^SOX) index rose 1.6% as of midday trading on Thursday, while the S&P 500 rose about 0.7%.
AI chipmaker Nvidia (NVDA) rose as much as 3% on Thursday as investors reacted to positive sentiment on artificial intelligence, at one point hitting an intraday high. Its rival Advanced Micro Devices (AMD) rose 1.3% before paring gains. Chipmaker Qualcomm (QCOM) rose to 1.7%, and semiconductor company Broadcom (AVGO) climbed 3.5%. US-listed TSMC shares rose 10.5%, pushing the company’s market capitalization past the $1 trillion mark.
When asked on a call with analysts whether there is an AI bubble, TSMC CEO CC Wei said: “We believe the demand for AI is real and will continue for many years to come.”
TSMC produces artificial intelligence chips designed by Nvidia and its rival Advanced Micro Devices, and those chips are used in data centers to power AI software like ChatGPT and other popular bots. TSMC on Thursday reported third-quarter earnings that were 54% higher than last year and raised its full-year sales outlook. The increased guidance was largely driven by “extremely robust AI-related demand,” Wei said. The chip manufacturer expects AI revenues to more than triple by 2024.
TSMC is one of three companies that can produce AI chips that have been crucial to the massive wave of AI innovation following the launch of OpenAI’s ChatGPT in 2022. The Taiwanese company dominates rivals Samsung (005930.KS) and Intel (INTC) in the field of AI semiconductor market. In addition to Nvidia and AMD, major TSMC customers include Apple (AAPL), Qualcomm and Broadcom.
TSMC’s sunny third-quarter earnings report and executives’ commentary on artificial intelligence are welcome signs for anxious investors worried about the future of the AI space. Wall Street analysts have raised concerns in recent months about the lack of near-term returns on investment for Big Tech companies spending vast sums on AI infrastructure. The concern is that tech companies could reduce spending on AI hardware, causing shares of companies like Nvidia and its supplier TSMC to fall.
These fears were on display earlier this week, when an AI equipment company’s troubles led to a plunge in global chip stocks. Dutch tech giant ASML (ASME.DE) indicated in its third-quarter earnings results this week that sales of its machines – used by TSMC to make Nvidia’s industry-leading AI chips – would decline. Although ASML’s results were driven by geopolitical concerns and other factors unrelated to the AI chip market, easily spooked investors sold shares of Nvidia, AMD and AVGO, with the shares suffering sharp declines.
TSMC’s results helped these AI chip stocks partially recover from those losses.
According to consultancy International Business Strategies, which tracks industry data, the AI chip market will grow by 99% in 2024 and another 74% next year. Meanwhile, the overall semiconductor market is expected to grow 18% this year and 12% in 2025. IBS data shows that the AI chip market – also known as the accelerator chip market – will outpace the industry as a whole by 2030.
Wall Street analysts reiterated their Buy ratings on TSM on Thursday.
“[W]We recommend TSMC stock as a core investment for investors looking to invest in semiconductors, which we view as the foundation of the expanding digital economy,” Needham analyst Charles Shi wrote in a note to investors on Thursday.
Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.
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