AI chip logic is too strong! ASML and Taiwan Semiconductor's performance are both good news for NVIDIA

Amidst the global frenzy of AI deployment, Taiwan Semiconductor (TSM.US), known as the "king of chip manufacturing," released an incredibly strong third-quarter performance report, which has significantly boosted the entire chip sector in the US stock market. On Tuesday, chip stocks collectively plummeted due to the unexpected performance failure of lithography giant ASML.US. However, at the opening of the US stock market on Thursday, Taiwan Semiconductor's ADR soared by over 12%, the Philadelphia Semiconductor Index, a benchmark for chip stocks, rose by nearly 3%, and AI chip leader NVIDIA reached a historic high in stock price driven by Taiwan Semiconductor's strong financial report.

Although ASML's performance failure caused a shock to global chip stock prices, from a rational investment perspective, this setback does not indicate a decline or cooling down of the global AI deployment trend. In fact, ASML's performance revealed a continuous surge in demand for AI chips. However, this shocking financial report has indeed unveiled the latest dynamics of the global chip industry, indicating that the AI frenzy is still ongoing. Particularly, the demand for all types of AI chips focusing on B-end data centers remains very strong, while areas unrelated to AI are experiencing weak or significantly declining demand.

ASML's CFO, Roger Dassen, supported this market view in the performance statement. The ASML executive stated that while the demand for AI-related chips is indeed increasing rapidly, the recovery process of other parts of the semiconductor market is weaker than expected, leading to delays in lithography machine orders by some logic chip manufacturers.

Taiwan Semiconductor's latest performance has significantly reinforced the investment view that the AI frenzy is still in full swing, with the demand for AI chips remaining extremely strong. When discussing the market demand for AI chips, Wei Zhejia, the head of Taiwan Semiconductor, stated during the performance meeting that the outlook for AI chip demand is very optimistic, emphasizing that the demand from Taiwan Semiconductor's customers for advanced CoWoS packaging far exceeds the company's supply.

"The company will fully meet the demand for advanced CoWoS packaging capacity from customers. Even if production capacity doubles this year and continues to double next year, it will still be far from enough." Wei Zhejia stated at the performance meeting. The capacity for advanced CoWoS packaging is crucial for a wider range of AI chips such as NVIDIA's Blackwell AI GPU. "Almost all AI innovators collaborate with Taiwan Semiconductor, and the demand for AI-related products is real, and I believe this is just the beginning."

The management of Taiwan Semiconductor expects the company's full-year revenue to grow by nearly 30%, surpassing the general analyst expectation of 20%-25% and the company's forecast from the previous quarter. The management also anticipates that this year, the revenue related to data center AI server chips from Taiwan Semiconductor (including NVIDIA's AI GPU, Broadcom's AI ASIC, and other extensive AI chips) will more than double.

After ASML's performance failure, some analysts even exclaimed that even with ASML's dismal performance, it actually benefits NVIDIA and other "AI shovel sellers" in terms of stock price trends, as it indicates that the demand for data center AI chips is still strong. Looking at the stock price trends, ASML, which holds the key to chip production capacity, has significantly underperformed NVIDIA. Unconsciously, the market has already provided a clear answer with real money on who the biggest winner in the chip sector is Therefore, the performance of ASML and Taiwan Semiconductor, the two core giants in the chip industry chain, jointly demonstrates: the stock logic closely related to AI chips can be described as extremely hardcore, and the rising trend of stocks of AI chip leaders such as NVIDIA may be far from over. Especially in the field of data center AI chips, where the dominant player NVIDIA holds a market share of 80%-90%, the stock price may continue to hit historical highs, breaking through the widely expected $150 mark may just be a matter of time.

The AI Boom Continues to Sweep the Globe

The latest performance results from ASML indicate a significant differentiation in the fate of global chip companies: the demand for data center server-side AI chips that can handle massive parallel computing patterns and high computational density for artificial intelligence applications such as ChatGPT and Sora, such as NVIDIA's AI GPU, has surged, overshadowing the extremely sluggish demand in other sub-sectors of the industry.

Janardan Menon, an analyst at the Wall Street major Jefferies, stated in a report on Wednesday: "ASML's financial report shows that although the demand for chips related to artificial intelligence remains very strong, the recovery in other areas is exceptionally lagging, and this trend may continue until 2025."

The global fervent demand for AI chips is clearly reflected in South Korea's chip inventory and the scale of chip exports, as South Korea is home to the world's two largest memory chip manufacturers - SK Hynix and Samsung.

Data released by the South Korean government shows that despite a slowdown in growth, semiconductor exports in September still increased significantly by 37% year-on-year, marking the 11th consecutive month of growth. Among the continuously growing chip export data, one-third of the growth contribution comes from HBM memory systems. HBM memory systems, in conjunction with the core hardware provided by the AI chip leader NVIDIA - H100/H200/GB200 AI GPUs and a wide range of AI ASIC chips (such as Google TPU), are indispensable for driving heavyweight artificial intelligence applications like ChatGPT and Sora. The stronger the demand for HBM, the more intense the demand for AI chips.

The current demand for AI chips is incredibly strong, and it may remain so for a long time to come. Data recently released by the Semiconductor Industry Association (SIA) shows that driven by the strong demand for AI chips, global semiconductor sales reached approximately $53.1 billion in August 2024, a 20.6% increase from August 2023's $44 billion, and a 3.5% increase from the already strong sales of $51.3 billion in July.

AMD CEO Lisa Su recently stated at a new product launch event that the demand for data center AI chips, including AI GPUs, far exceeds expectations. It is projected that by 2027, the market size of data center AI chips will reach $400 billion, and further increase to $500 billion in 2028. This implies that the compound annual growth rate of the global data center AI chip market is expected to exceed 60% from 2023 to 2028.

Global renowned strategic consulting firm Bain predicts that as artificial intelligence (AI) technology rapidly disrupts enterprises and economies, the market size of all AI-related sectors is expanding, reaching $990 billion by 2027. In its fifth annual "Global Tech Report" released on Wednesday, the consulting firm pointed out that the overall AI market size, including AI-related services and core hardware such as AI GPUs, is expected to grow at a rate of 40% to 55% per year from the base of $185 billion last year. This means it will bring in substantial revenue of $780 billion to $990 billion by 2027.

Wall Street banking giant Bank of America recently released a research report stating that the global AI boom is still in its early stages, similar to the development path of the Internet in the 1990s, comparable to the "1996 moment" of the Internet's vigorous development. This suggests that in the view of the Bank of America analysis team, the AI boom is still in a very early stage.

NVIDIA Stock Price Targets $150

Referred to as the "most important stock on Earth" by Goldman Sachs, NVIDIA's stock price once held the title of "world's highest market value listed company" earlier this year. However, in the second half of this year, it experienced a pullback due to the unclear prospects of AI monetization and global macro policy shocks, with the stock price entering a downward trend.

Recently, many global technology companies, when showcasing their business progress, cannot avoid mentioning NVIDIA's cutting-edge AI GPU server systems. Coupled with the optimistic predictions of Wall Street banks on data center spending and NVIDIA's stock price, NVIDIA's stock price broke through the previous high point during Thursday's US stock market session, reaching a new all-time high of $140.89, and is poised to once again challenge for the title of "highest market value listed company".

According to the latest forecast data from Wall Street financial giant Citigroup, by 2025, the data center-related capital expenditures of the four largest tech giants in the United States are expected to increase by at least 40% year-on-year. These massive capital expenditures are largely linked to generative AI, indicating that the computational power demand for AI applications like ChatGPT remains significant. Citigroup stated that this implies that the giants are expected to further expand their spending on data centers beyond the already strong 2024 spending scale, and this trend is expected to continue to provide very significant positive catalysts for the undisputed leader in AI GPUs, NVIDIA, and data center interconnect (DCI) technology providers. **

In a research report, Citigroup referred to the four major tech giants as the global cloud computing giants Amazon, Google, Microsoft, along with the parent company of social media platforms Facebook and Instagram. In this latest research report, Citigroup predicts that by 2025, the data center capital expenditure of these four major tech giants will increase by 40% to 50% year-on-year. The significant increase in data center spending by tech giants is expected to drive the stock prices of data center networking technology giants such as NVIDIA and Arista Networks, which are considered leaders in AI infrastructure and are favored by international investors.

The Citigroup analysis team stated in the latest research report that NVIDIA's server GPUs and NVIDIA's overall server hardware system in the field of AI infrastructure have an absolute leading position in terms of Total Cost of Ownership (TCO) and Return on Investment (ROI), which is emphasized as a core consideration for data center operators. They value the higher performance of running various applications (including AI training/inference applications) on NVIDIA's hardware and CUDA parallel acceleration software platform.

The CUDA ecosystem can be described as NVIDIA's "strongest moat". NVIDIA has been deeply involved in the global high-performance computing field for many years, especially with its CUDA computing platform that has become popular worldwide, making it the preferred software and hardware collaborative system for high-performance computing in areas such as AI training/inference. The CUDA accelerated computing ecosystem is an exclusive parallel computing acceleration platform and programming assistance software developed by NVIDIA, allowing software developers and engineers to use NVIDIA GPUs for parallel general-purpose computing (only compatible with NVIDIA GPUs, not compatible with mainstream GPUs such as AMD and Intel).

The Citigroup analysis team recently reiterated the institution's target price of up to $150 for NVIDIA within 12 months, along with a "Buy" rating. Data compiled by TIPRANKS shows that 42 Wall Street analysts have an average target price expectation of $152.86 for NVIDIA within 12 months, indicating a potential upside of nearly 10%.

Wedbush, a well-known Wall Street investment firm, recently released a research report stating that the top three tech giants in the US stock market—Apple (AAPL.US), NVIDIA (NVDA.US), and Microsoft (MSFT.US)—are expected to have a combined market value of $4 trillion for one of the three tech giants in the next six to nine months.

Led by Daniel Ives, Wedbush analysts made bold and optimistic predictions about future AI spending and infrastructure. Ives stated in an investor report, "We believe that with the establishment of next-generation AI infrastructure, the market size of the entire AI infrastructure dominated by NVIDIA AI GPUs may increase tenfold from today to 2027 We estimate that capital expenditures in the field of artificial intelligence will reach $1 trillion in the next three years