dutch firm asml and Taiwanese TSMCThe share price rose on Thursday after two of the world’s most important semiconductor firms nvidia’s The earnings impressed investors.
Nvidia reported earnings and revenue that beat market expectations on Wednesday. But forecast sales of about $11 billion for the second quarter — 50% higher than Wall Street’s estimates — sent the US giant’s stock up more than 24% in after-hours trading.
The forecast comes as demand for its artificial intelligence-related chips surges.
Nvidia designs and sells graphics processing unit (GPU) chips that are used in data centers and power AI applications. Interest in AI has grown in recent months, arguably due to the viral nature of OpenAI’s ChatGPT.
The rise in Nvidia’s stock has sparked a rally in chip names globally.
The two most notable are ASML and TSMC. ASML, headquartered in the Netherlands, was up more than 5% in early European trade on Thursday. TSMC, which is listed in Taiwan, closed more than 3% higher.
This rally can be explained by one simple fact: Nvidia doesn’t make its own chips. Instead, it relies on TSMC, the world’s most advanced chipmaker, to manufacture its GPUs. And TSMC relies on ASML’s machines, which are needed to manufacture the world’s most advanced semiconductors.
Nvidia’s bullish forecast for the second quarter has fueled expectations that it will increase orders with the likes of TSMC, which in turn rely on ASML’s devices.
“We have significantly oversupplied for the second half of the year,” Nvidia Chief Financial Officer Colette Kress said on Wednesday’s earnings call.
The stock price rally across the industry highlights the concentrated nature of the semiconductor supply chain.
Nvidia is arguably the leader when it comes to designing AI chips, but it relies on TSMC – the largest and most advanced contract chipmaker in the world. For example, TSMC makes chips for a number of companies, including Apple.
Meanwhile, ASML is the only company in the world that can build and sell a $200 million extreme ultraviolet (EUV) lithography machine. This tool is needed to make cutting-edge chips, the likes of which are required by Nvidia for its top-end GPUs.