Following an intense period of growth lasting more than two years and a stock surge exceeding 1,000%, Nvidia (NVDA) investors are now adopting a more cautious stance. Factors such as doubts about the long-term expansion potential of artificial intelligence (AI), apprehensions about sales in China, and worries over tariff implications have collectively affected the company lately. The main query on investors’ minds is whether the AI revolution can endure over time.
It’s widely held by experts that the widespread use of Artificial Intelligence is still in its early stages, and investors have been seeking more concrete proof. On Thursday morning, Taiwan Semiconductor Manufacturing (TSM), often known as TSMC, released their second-quarter results, offering the most compelling indication so far that AI has potential for further growth.
Foundry to the AI stars
In simple terms, TSMC stands as the leading global manufacturer of chips, accounting for approximately 60% of the contract semiconductor manufacturing market. However, what truly sets it apart is its dominance in the advanced chip sector, which represents about 90% of the market. These chips are crucial for high-performance computing and artificial intelligence, with Nvidia being one of its major clients. This makes TSMC a key player in understanding AI demand trends. Its current success closely mirrors the rapid growth and integration of AI technology into various sectors.
Initially, TSMC investors anticipated promising outcomes, but they were pleasantly surprised by far exceeding expectations. In the second quarter alone, the company achieved a revenue of an impressive $30.1 billion, marking a 39% increase compared to the same period last year and a 11% rise from the previous quarter. This extraordinary performance led to a significant jump in adjusted earnings per share (EPS), soaring by 61% to an all-time high of $2.47 per American depositary receipt unit.
To help understand how well the results fared compared to predictions, analysts had forecasted a revenue of $30.2 billion and earnings per share (EPS) of $2.38. The company’s strong performance was primarily attributed to its high-performance computing (HPC) division, boosted by increased demand for artificial intelligence (AI). Notably, the firm mentioned that 74% of their total wafer sales during the quarter were accounted for by their most advanced chips, which are 7 nanometers and smaller in size.
In addition to the excitement generated by previous announcements, TSMC increased its 2025 projection and anticipates a 30% rise in annual revenue, measured in U.S. dollars.
CEO C.C. Wei made it clear that the impressive financial results were primarily fueled by persistent high demand for AI and High Performance Computing (HPC) technologies. He further added that recent advancements are optimistic indicators for AI’s future demand. He emphasized the growing use and adoption of AI models, predicting that the company anticipates strong demand in AI to persist.
What this means for Nvidia
It’s indisputable that Nvidia has significantly profited from the widespread use of Artificial Intelligence. Previously, the company was mainly recognized for its role in the gaming industry, manufacturing graphics processing units (GPUs) essential for generating realistic visuals in video games. However, those times have passed.
During the first quarter of its fiscal year 2026, Nvidia recorded a revenue of $44 billion, marking a 69% increase compared to the same period the previous year. Upon closer examination of the financial results, it becomes clear that this growth was primarily driven by two sectors: data centers and gaming/PC. The data center segment, which includes AI chips, experienced a staggering 69% surge, reaching an all-time high of $39 billion. Simultaneously, the gaming and PC sector saw a robust increase of 42%, resulting in revenue of $3.8 billion. In essence, data center sales accounted for approximately 89% of Nvidia’s total revenue. Given AI’s crucial role in Nvidia’s recent success, investors are particularly attentive to any potential indications of softening demand for AI technology.
Moving forward, Nvidia anticipates a quarterly revenue of approximately $45 billion, signifying a 50% increase compared to the same period last year.
It’s important to mention that Nvidia reported a $4.5 billion expense during the first quarter, stemming from restrictions on sales of its H20 chips meant for China. This week, their CEO, Jensen Huang, announced in a blog post that Nvidia has applied for a license to resume selling these chips and was given assurances by the Trump administration that their application will be granted. Analysts predict potential earnings of up to $15 billion from these additional sales in the latter half of the year.
As an ardent observer of technological advancements, I firmly believe that the AI revolution is thriving and vibrant. With the renewal of chip sales to China, it seems clear that Nvidia has a vast horizon for growth stretching out before it. What makes this even more enticing is that despite being sold at 29 times the projected earnings for the next year, it remains an attractive investment due to its relatively affordable price tag.
And that’s why I predict Nvidia stock will likely soar for the rest of 2025.
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2025-07-20 10:02