Dutch company ASML and Taiwan TSMCtwo of the world’s largest semiconductor companies, pushed their stock prices higher on Thursday after Nvidia earnings impressed investors.
Nvidia on Wednesday reported earnings and revenue above market expectations. But its sales forecasts of approximately $11 billion for the second quarter – more than 50% higher than Wall Street estimates – is what sent shares of the US giant jumping more than 24% in after-hours trading.
The forecast comes as demand for its AI-related chips increases.
Nvidia designs and sells graphics processing unit (GPU) chips that are used in data centers and power AI applications. Interest in AI has increased in recent months, no doubt due to the viral nature of OpenAI’s ChatGPT.
Rising Nvidia shares sparked a rally in chip names around the world.
Two of the most notable are ASML and TSMC. ASML, headquartered in the Netherlands, rose more than 5% in early European trading on Thursday. TSMC, which is listed in Taiwan, closed up more than 3%.
This rally can be explained by a simple fact: Nvidia does not manufacture its own chips. Instead, it relies on TSMC, the world’s most advanced chipmaker, to manufacture its GPUs. And TSMC relies on machines from ASML, which are needed to make the world’s most advanced semiconductors.
Nvidia’s bullish outlook for the second quarter bolstered expectations that it will ramp up orders with companies like TSMC, which in turn is relying on ASML’s gear.
“We bought significantly higher supply for the second half of the year,” Nvidia chief financial officer Colette Kress said during the earnings call on Wednesday.
Rising stock prices in the industry highlight the concentrated nature of the semiconductor supply chain.
Nvidia is arguably the leader in AI chip design, but it relies on TSMC, the world’s largest and most advanced contract chipmaker. TSMC makes chips for a plethora of companies, including Apple, for example.
Meanwhile, ASML is the only company in the world that can manufacture and sell its $200 million extreme ultraviolet (EUV) lithography machine. This tool is needed to manufacture cutting-edge chips, which Nvidia needs for its high-end GPUs.