Dutch firm ASML and Taiwan’s TSMC, two of the world’s most important semiconductor firms, got a share price boost on Thursday after Nvidia’s earnings impressed investors.
Nvidia reported earnings and revenue that beat market expectations on Wednesday. But its sales forecast of about $11 billion for the second quarter — more than 50% higher than Wall Street estimates — was what sent the U.S. giant’s stock surging more than 24% in after-hours trade.
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 go on to power AI applications. Interest in AI has surged over recent months, arguably off the back of the viral nature of OpenAI’s ChatGPT.
The rise in Nvidia’s stock has sparked a rally in chip names globally.
Two of the most notable are ASML and TSMC. ASML, headquartered in the Netherlands, was up more than 5% in early European trade Thursday. TSMC, which is listed in Taiwan, closed more than 3% higher.
This rally can be explained by a simple fact: Nvidia does not manufacture its own chips. Instead, it relies on TSMC, the most advanced chipmaker in the world, to manufacture its GPUs. And TSMC relies on machines from ASML, which are required to manufacture the world’s most advanced semiconductors.
Nvidia’s bullish forecast for the second quarter has bolstered expectations that it will ramp up orders with the likes of TSMC, which in turn relies on ASML’s equipment.
“We have procured substantially higher supply for the second half of the year,” Colette Kress, chief financial officer at Nvidia, said on the earnings call on Wednesday.
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. TSMC manufactures chips for a plethora of companies including Apple, for example.
Meanwhile, ASML is the only company in the world that can makes and sell its $200 million extreme ultraviolet (EUV) lithography machine. This tool is required to make cutting-edge chips, the likes of which are required by Nvidia for its top-end GPUs.