Nvidia Reaches Record High as Chip Stocks Surge on TSMC's Positive AI Outlook

Nvidia Reaches Record High as Chip Stocks Surge on TSMC's Positive AI Outlook

Nvidia's stock soared to a record high on Thursday following a rally in U.S. chip stocks fueled by optimistic sales forecasts from Taiwan Semiconductor Manufacturing Co (TSMC), the world's leading contract chipmaker. TSMC's projections for annual revenue growth, particularly in the artificial intelligence (AI) sector, have heightened investor enthusiasm regarding the demand for processors essential for AI applications.

In its latest forecast, TSMC announced that it expects AI chips to contribute a mid-teen percentage to its overall annual revenue, a significant boost that reflects the growing importance of AI technology in the semiconductor industry. As a result, shares of TSMC, which is crucial to the supply chain of many chipmakers, surged more than 11%, pushing the company's market capitalization above the $1 trillion mark.

The positive outlook from TSMC has reaffirmed investor confidence in chipmakers that have experienced significant valuation increases over the past two years, largely driven by increased chip spending from major technology companies. Nvidia, a key player in the AI chip market and a prominent TSMC customer, saw its stock price climb nearly 4% to reach an all-time high of $140.89, although it later settled to a 2% increase in afternoon trading. Smaller competitor Advanced Micro Devices (AMD) also benefited, gaining nearly 1%, while other industry giants such as Broadcom, Qualcomm, and Micron recorded gains ranging from 1% to 3.6%.

Investment analyst Dan Coatsworth from AJ Bell noted the strong correlation between TSMC's results and Nvidia's performance, stating that Nvidia's standing as one of TSMC's major clients means the latter's success directly impacts the former.

Despite ongoing struggles within the semiconductor sector, shares of Intel increased by 1%. Intel has been working to expand its chip fabrication facilities in a bid to compete with TSMC in advanced contract manufacturing, an endeavor that analysts predict will require several years to bear fruit.

TSMC's encouraging outlook has provided some relief to investors, particularly following significant forecast reductions from chipmaking equipment giant ASML, which raised concerns about a slower-than-anticipated recovery in semiconductor demand unrelated to AI. However, Coatsworth reassured investors, stating, "Fortunately, everything is fine in AI land." He further emphasized TSMC's strong demand across both AI-related businesses and the smartphone market, suggesting that the chip sector retains its momentum.

TSMC's shares traded in the U.S. have more than doubled this year, while Nvidia's stock has skyrocketed by 180% as investors continue to pour billions into chip stocks amid Wall Street's thriving picks-and-shovels investment strategy in the technology sector.