Maybe the AI boom isn’t petering out after all. The news Taiwan Semiconductor Manufacturing Company on Thursday reported strong third-quarter results fueled, in part, by artificial intelligence processors. Per-share profit at the world’s largest third-party chip producer jumped 54% from the year-ago period. Sales rose 36%. TSMC shares that trade in the U.S. soared 12.5% on the release and sparked a board semiconductor stock rally, which included our three AI chip designers — Nvidia , Advanced Micro Devices and Broadcom . They are all customers of TSMC. The demand for AI “is real,” TSMC’s chief executive, C.C. Wei, said on Thursday’s earnings call. “One of my key customers says the demand right is insane. It’s just the beginning.” The customer mentioned, which was not named, is clearly Nvidia. In a CNBC interview on Oct. 2 , CEO Jensen Huang said that demand for Nvidia’s next-generation chip platform Blackwell is “insane.” Wei said TSMC is working hard to increase its capacity for a type of advanced packaging, commonly abbreviated as CoWoS, that enables multiple chips to be stacked together to increase performance. While it is essential for today’s advanced AI chips, it also has been a bottleneck in the supply chain during the AI boom that began in late 2022. “Our customer’s demand far exceeds our ability to supply,” Wei said, noting TSMC is more than doubling its CoWoS capacity this year. “But still not enough.” Big picture TSMC’s report and conference call are quelling fears that just days ago rocked the chip sector. On Tuesday, semiconductor equipment maker ASML reported earnings and issued guidance well below expectations. The Dutch company, which sells expensive lithography machines used in the chip production process, said the biggest issues were in the non-AI parts of the semiconductor industry. The news caused a dramatic sell-off in ASML’s stock and dragged its industry brethren down with it. The iShares Semiconductor ETF fell more than 5%, as did AMD. Nvidia dropped 4.7%. To be sure, a Bloomberg report earlier Tuesday that the U.S. government was considering a cap on AI chip exports to certain Persian Gulf nations may also have dampened industry sentiment. However, semiconductor stocks did rally Wednesday along with the market. Investors are sensitive to any updates on AI chip demand, given the dramatic rise in the stocks of Nvidia, AMD, Broadcom and others over the past two years. Even though most signals suggest it’s still full steam ahead, some investors remain on edge about the boom turning into a bust. Bottom line Artificial intelligence is alive and well, according to TSMC, which has emerged as the most valuable window into AI demand other than Nvidia itself. The view is quite pleasant. With Big Tech earnings in the coming weeks, it’s particularly nice to see the AI chip trade stabilize after the ASML debacle. We added to our position in AMD during Tuesday’s sell-off. Jim said Thursday that AMD, which has way underperformed Nvidia, Broadcom and the broader market, is “still a bargain.” Nvidia remains one of our two “own it, don’t trade it” stocks. Apple is the other. For Broadcom, as much as we like it for AI, we’re encouraged that lagging parts of its legacy business, most notably smartphones, are starting to turn into a tailwind from a headwind. Broadcom is a key supplier to fellow Club holding Apple’s iPhone, which we expect to benefit from an elongated upgrade cycle fueled by customers wanting AI-enabled devices. TSMC, which also makes chips for Apple, said its smartphone business was a bright spot in the third quarter, too. (Jim Cramer’s Charitable Trust is long AMD, NVDA, AVGO, AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Maybe the AI boom isn’t petering out after all.
