US chip stocks rise as TSMC's strong AI chip forecast boosts investor optimism

Shares of US chipmakers surged before Thursday's market open, driven by a positive sales forecast from Taiwan Semiconductor Manufacturing Co. (TSMC).

The world’s largest contract chipmaker raised its annual revenue growth expectations and highlighted that AI chips will contribute a significant portion of its full-year revenue, sparking fresh investor confidence in the sector.

TSMC boosts revenue outlook

TSMC, a key supplier to Nvidia and Apple, posted a 54% increase in Q3 net profit, surpassing expectations as surging demand for artificial intelligence (AI) chips offset weakness in the mobile industry.

The chip giant reported net profit for the September quarter of NT$325.3 billion ($10.1 billion), exceeding analysts’ average estimate of NT$299.3 billion.

The leading producer of advanced AI chips, expects a mid-teen percentage of its 2024 revenue to come from AI processors.

This optimistic outlook reassured investors, who have seen semiconductor stocks soar in value over the past two years, largely due to a surge in AI-related spending by Big Tech firms.

The company's US-listed shares rose 7% in premarket trading, pushing TSMC’s market capitalization close to the $1 trillion mark if the gains hold.

Nvidia, AMD, and others benefit

Following TSMC's forecast, shares of key chipmakers also saw gains.

Nvidia, a frontrunner in AI chip technology, and rival AMD both climbed over 2%.

Broadcom, Qualcomm, and Micron, all major players in the semiconductor space, increased between 1.5% and 3%.

Intel, which has struggled to keep pace with its competitors, also saw its stock rise.

The company has been investing heavily in expanding its chip fabrication capabilities to compete with TSMC in advanced contract manufacturing, although analysts believe this transition will take years to materialize.

Respite after ASML's forecast cut

TSMC's outlook provided a welcome boost to the semiconductor sector, especially after chipmaking equipment leader ASML slashed its forecasts, causing concerns about weaker-than-expected recovery in non-AI chip demand.

TSMC’s US-listed shares have already climbed over 80% this year, outperforming many of Asia’s major tech companies.

The growth mirrors investor confidence in the AI theme, with US retail investors actively trading TSMC’s American depositary receipts (ADRs).

As of early trading, TSMC’s ADRs rose 4.5% on Robinhood’s platform.

Nvidia’s value has more than doubled, as Wall Street continues to favor semiconductor stocks in the booming AI and tech industries.

AI is not in a bubble and its growth is for real: TSMC CEO

On a conference call on Thursday, CC Wei, the chairman and chief executive of TSMC sought to dismiss the oft-raised question about whether the AI boom was a bubble.

He was asked by JPMorgan analyst Gokul Hariharan about the return on investment for generative AI and whether it can end up being a bubble.

According to a FactSet transcript, Wei said,

He estimated a 1 billion Taiwan dollar ($31 million) boost to productivity from using AI.