Nvidia, chip stocks rally after TSMC’s blowout earnings

Investing.com — Chip stocks rose higher Thursday after a blowout earnings report by Taiwan Semiconductor Manufacturing (NYSE:), the world’s largest producer of advanced chips and a key player in the ongoing AI boom.

Shares in Nvidia (NASDAQ:) climbed 2.5% in premarket trading, while AMD (NASDAQ:) and Broadcom (NASDAQ:) added 3% and 1.9%, respectively.

Moreover, Intel (NASDAQ:) shares climbed 1%, Qualcomm (NASDAQ:) rose 1.9%, and Micron Technology (NASDAQ:) climbed 2.2%.

TSMC reported a 54% increase in net profit, as global chipmakers continue to benefit from demand driven by AI applications.

The company’s net income for the July-September quarter was 325.3 billion Taiwanese dollars ($10.1 billion), exceeding the LSEG estimate of 300.2 billion Taiwanese dollars cited by Reuters.

Net revenue for the third quarter reached $23.5 billion, up 36% year-on-year. The company’s gross margin improved to 57.8% over July-September, compared to 54.3% during the same period last year.

In a statement, TSMC said that in the third quarter, “our business was supported by strong smartphone and AI-related demand for our industry-leading 3nm and 5nm technologies,” referencing its semiconductor nodes.

During an earnings call, TSMC Chairman and CEO C.C. Wei emphasized that AI demand is “real” and noted that the company has experienced the “deepest and widest growth of anyone in this industry” as a result.

“We have talked to our customers all the time, including our hyperscaler customers who are building their own chips. And almost every AI innovator is working with TSMC,” he said, according to a call transcript produced by FactSet.

TSMC now expects its capital expenditure for this year to increase to slightly more than $30 billion, as mentioned during the earnings call. The firm’s capital expenditures rose to $6.4 billion in the third quarter, up from $6.36 billion in the previous three months.

“TSMC is a major gauge of how quickly the AI movement and hyper data centers can be built out and how healthy supply dynamics are in the space,” Paul Marino, Chief Revenue Officer at Themes ETFs told Investing.com.

TSMC’s Taipei-listed shares have soared nearly 80% year-to-date, surpassing the broader market’s gains of 28.57%.

The company’s solid Q3 print has helped improve investor sentiment following recent disappointing guidance and results by European chipmaker ASML (AS:). The firm saw its shares tumbling after issuing a lower-than-expected forecast of net sales.

“The fact that ASML guided so low put some doubt into investors as to whether or not this AI demand is as big as everyone is predicting. And it puts a spotlight on guidance for every other semiconductor company that reports moving forward,” Marino commented.

“That said, I do believe there is a significant difference in demand from companies like AMD and Nvidia, and investors will look for robust guidance to justify current valuations when they report later in the quarter.”