Why semiconductor stock prices rose today

Shares of semiconductor stocks rose after their first major earnings reports on Thursday. taiwan semiconductor manufacturing (TSM 7.12%). The industry is watching chip demand closely, and TSMC expects 20% sales growth this year.

Not only did Taiwan Semiconductor’s stock price surge by 8.8% in the early hours of trading, Broadcom (AVGO 2.90%) 3.9% increase, intel (INTC 0.91%) It rose 3.3%, advanced micro devices (AMD 0.03%) It rose 5.3%. Shares were up 7.1%, 3.2%, 1.8% and 0.5%, respectively, at 12:30 PM ET.

Demand picture looks positive

On a macro level, investors were interested in how semiconductor demand looked overall. The industry can be very cyclical, with demand falling in 2023 as smartphone and PC sales decline. Some companies have struggled to clear excess inventory, hurting demand from manufacturers like TSMC.

TSMC executives said artificial intelligence is driving improved demand for advanced chips, which they expect will boost sales by 20% in 2024. For context, sales were down 8.7% in 2023, so this is a bounce from recent lows.

Estimates for the entire chip industry

The reason Broadcom, Intel, and AMD are rising is because investors are simply extrapolating TSMC’s success to the rest of the industry. Since TSMC does not make its own chips and is an outsourcing manufacturer to other companies, it makes sense that if there is demand for chip manufacturers, there will be demand for chip designers as well.

TSMC’s optimistic attitude toward artificial intelligence is also noteworthy among Intel and AMC. The past year has been dominated by AI chips. nvidiaHowever, the market is so large and evolving so quickly that, over time, everyone will adopt AI solutions. This could be a tailwind for companies like Intel and AMD.

expensive processing time

There is no question that AI will dominate this year again, and TSMC is pointing in that direction. However, investors should be aware that both of these companies are becoming relatively expensive, and the story could change if the AI ​​market slows later this year.

AVGO PS Ratio Data from YCharts

In particular, in the case of Intel, there is still a lot of work to be done to turn around its business. In many ways, it is trying to copy TSMC’s foundry model, but it also has a chip design division, so it is targeting both sides of the market. Having existing cash flow to fall back on helps, but it’s not the market leader it was 20 years ago.

This is the first real data point on the semiconductor industry of earnings season, with more to come in the coming months. Today’s rebound is good, but keep in mind that not all companies will follow TSMC’s lead as more detailed data comes in.