The world’s top semiconductor companies, such as Nvidia ( NVDA -4.33%) and Broadcom ( AVGO -3.52%), depend on a single supplier for their most advanced chips.
Taiwan Semiconductor Manufacturing ( TSM -2.34%), or TSMC, stands as the dominant force in cutting-edge chip production. Thanks to its technological edge and vast manufacturing capabilities, TSMC handles the majority of fabrication for companies seeking the latest semiconductor advancements. As a result, any update from TSMC can significantly impact its largest clients.
TSMC has just shared fresh figures, and the results should reassure shareholders of Nvidia and Broadcom.
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Demand for high-end chips continues to soar
Beyond its standard quarterly earnings, TSMC also publishes monthly revenue updates. Given TSMC’s scale, these reports offer early insights into its financial performance and the broader chip sector.
In September, sales jumped 31.4%, totaling 330.98 billion New Taiwan Dollars. When combined with July and August, quarterly revenue reached NT$989.92 billion, surpassing the upper end of management’s forecast of NT$957 billion.
TSMC’s strong results were hinted at in its July and August updates. Although there were worries that some September orders might have been moved up to earlier months, that scenario didn’t occur. September’s figures aligned with expectations based on the previous two months.
This indicates that TSMC continued to receive robust demand from its major clients, including Nvidia, Broadcom, and other AI chip producers. Essentially, their quarterly performance was solid enough to maintain high order levels at TSMC. This is further supported by recent moves from large tech firms, which have been striking more deals to ramp up AI chip spending.
These trends are likely to fuel ongoing revenue growth for TSMC, which is set to announce its third-quarter results and fourth-quarter forecast on Oct. 16. That update could offer investors a broader view of the industry’s direction.
Should you buy Nvidia or Broadcom stock now?
Although TSMC’s sales point to strong quarters for customers like Nvidia and Broadcom, investor expectations for both are already high. Analysts project Nvidia’s revenue will soar 55% year over year in each of the next two quarters. For Broadcom, forecasts call for sales to rise 24% and 22% over the same periods, reflecting its broader business mix.
Broadcom could see even greater gains next year, with an anticipated $10 billion boost from a new custom chip designed for OpenAI. Analysts expect its revenue growth to accelerate to 33% in 2024. Nvidia, while facing increased competition from other chipmakers such as Broadcom, is still expected to post 33% revenue growth as the leader in GPUs.
At the same time, both AI chip stocks have seen their prices climb roughly 40% this year, resulting in elevated valuations. Nvidia trades at about 42 times projected earnings, while Broadcom is valued at 49 times forward earnings.
Even though analysts anticipate robust profit growth for both companies and TSMC’s numbers support these forecasts, any minor miss in earnings or guidance could cause their stocks to drop sharply at these high multiples.
For those considering an investment in AI chipmakers, TSMC may offer a more compelling choice. While analysts foresee a slowdown in its revenue and profit growth starting in the fourth quarter, its shares are priced at a more reasonable 29 times forward earnings, despite a significant rally since early September.
TSMC stands out as an appealing investment thanks to its strong competitive position and broad customer base, allowing investors to benefit from the AI chip boom without being tied to a single chip design. Those eyeing Nvidia or Broadcom might want to wait for a more favorable buying opportunity.
