Pioneer of artificial intelligence (AI) Nvidia released a stellar quarterly report that beat Wall Street expectations, sending shares of the chipmaker higher as it became clear that AI was going to remain a major growth driver for the company. However, Nvidia isn’t the only semiconductor stock to benefit from its impressive performance.
Actions of Advanced microsystems (NASDAQ:AMD) And Semiconductor manufacturing in Taiwan (NYSE:TSM), popularly known as TSMC, also saw a rebound following Nvidia’s report. Let’s take a look at why that was the case and why it might be worth buying these two names right away.
1. Semiconductor Manufacturing in Taiwan
TSMC stock jumped more than 3% after Nvidia released its results. This was not surprising since Nvidia relies on TSMC foundries to produce its AI chips. Nvidia is a fabless semiconductor company, meaning it only designs chips; manufacturing is carried out by foundries such as TSMC.
Nvidia is gradually becoming one of TSMC’s main customers. Although TSMC doesn’t reveal details of its business with individual customers, Nvidia reportedly produced 11% of its revenue last year, according to financial analyst Dan Nystedt (via Tom’s Hardware). There’s a good chance that Nvidia will contribute more significantly to TSMC’s revenue for a few simple reasons.
Nvidia management emphasized during the company’s latest earnings conference call that it has already put its next-generation Blackwell chips into full production. The company will continue to ramp up production of its new chips during the fiscal third quarter. According to third-party estimates, Nvidia could ship 420,000 units of its GB200 Blackwell Superchip, which contains two of the company’s latest generation B200 AI graphics processing units (GPUs).
Better yet, Nvidia is expected to ship between 1.5 million and 2 million GB200 superchips next year, which should pave the way for tremendous growth at TSMC. The initial ramp-up of production of Nvidia’s new chips already appears to be generating solid growth for TSMC, as its revenue for April climbed nearly 60% year over year, an acceleration from to the 34% growth recorded in March.
More importantly, TSMC is aggressively increasing its production capacity to meet the growing demand for Nvidia chips. The company recently announced that it is set to increase its advanced chip packaging capacity – formerly known as chip-on-wafer-on-substrate (CoWoS) – at an annual rate of 60% through at least 2026. This rapid improvement will allow TSMC to produce more AI chips for Nvidia, which is why analysts have increased their expectations for revenue growth.
With TSMC currently trading at 29 times earnings compared to the US tech sector average of 42, investors are getting a good deal on this front. AI actions, which they should consider grabbing with both hands before it flies higher.
2. Advanced micro-devices
Nvidia is the dominant…
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