The AI Revolution: A Boon for Two Chipmaking Giants
The artificial intelligence (AI) trend has been a game-changer for the share prices of Nvidia and Taiwan Semiconductor Manufacturing over the past year. The two chipmakers have seen their stocks soar by 204% and 121%, respectively, outpacing the 35% gains recorded by the PHLX Semiconductor Sector index.
Cloud Spending on the Rise
The massive demand for powerful chips capable of handling AI workloads in data centers has driven these share price gains. Major cloud service companies and governments are deploying large quantities of AI-specific semiconductors designed by Nvidia and manufactured by Taiwan Semi. According to market research firm Gartner, global public cloud spending grew by 19.2% in 2024 and is forecasted to grow at a faster pace of 21.5% in 2025.
Microsoft’s Ambitious AI Plans
Evidence of cloud spending growth in 2025 is already emerging. Microsoft Vice Chairman and President Brad Smith recently announced that the company is on track to invest approximately $80 billion to build out AI-enabled data centers. This news bodes well for Nvidia and TSMC. Microsoft’s capital expenditures on property, plant, and equipment reached $14.9 billion in its fiscal 2025 first quarter, indicating a higher level of quarterly capex spending for the rest of the fiscal year.
Other Cloud Giants Join the Fray
Microsoft won’t be the only company significantly increasing its capital outlays for AI infrastructure. Meta Platforms, for example, is expected to report total 2024 capital expenses in the range of $38 billion to $40 billion, with plans for “significant” growth in 2025. The combined spending of major cloud computing players could reach $300 billion in 2025, up from around $200 billion in 2024, according to Morgan Stanley estimates.
Meeting Demand with Increased Capacity
The addressable market for AI chips is set to expand considerably this year. Fortunately, both Nvidia and TSMC are well-positioned to meet the demand from major cloud providers. Microsoft CEO Satya Nadella recently remarked that the tech giant isn’t constrained for AI chip supply anymore. Nvidia’s CFO Colette Kress also stated that the company is on track to exceed its previous revenue estimate, thanks to increased visibility into supply. TSMC is expected to double its advanced chip packaging capacity in 2025, with Nvidia allocated 60% of this increased capacity.
Analysts Expect Strong Earnings Growth
Analysts are expecting Nvidia’s earnings to increase by 50% in its fiscal 2026 to $4.43 per share, while TSMC’s earnings are expected to jump by 28% in 2025 to $9.06 per share. However, the combination of increased capital spending by cloud service providers and the focus on adding capacity by Nvidia and TSMC could lead to even stronger gains that surpass Wall Street’s current expectations.
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