Taiwan Semiconductor Manufacturing (TSM 4.63%) stock is experiencing a notable increase this Thursday, reflecting a positive trend in technology sector valuations. As of 2 p.m. ET, the company’s share price surged by 4%. During the same timeframe, the tech-focused Nasdaq Composite index also showed an uptick of 1.8%, highlighting a robust market performance.
The remarkable rise in TSMC’s stock can be attributed to strong quarterly performance reports from industry leaders Microsoft and Meta Platforms. Both companies not only surpassed Wall Street’s earnings and sales expectations but also provided insights into their capital expenditures (capex), which indicate a promising outlook for the artificial intelligence (AI) chip market.
Strong Quarterly Performance from Microsoft and Meta Indicates Increased Demand for TSMC’s Products
Microsoft and Meta are among the leading players in the AI software industry and are significant consumers of hardware designed for AI applications. Notably, Microsoft stands as Nvidia‘s largest customer, while Meta holds the position of its second-largest buyer. TSMC plays a vital role in manufacturing Nvidia’s cutting-edge processor designs and essential AI chips from various semiconductor designers. Consequently, TSMC investors closely monitor the capex reports from Microsoft and Meta as indicators of market demand, and the recent quarterly updates provided some reassuring insights.
In the third quarter of its fiscal year, which concluded on March 31, Microsoft reported a staggering 53% year-over-year increase in capex, reaching $16.75 billion. This figure exceeded the average analyst estimate of $16.37 billion for the period. On the other hand, Meta has raised its capex target for the current year to a range of $64 billion to $72 billion, a notable increase from its earlier forecast of $60 billion to $65 billion, showcasing its commitment to expanding its technological capabilities.
Future Prospects and Challenges for TSMC in the Semiconductor Market
The recent quarterly updates from Microsoft and Meta Platforms strongly indicate that leading tech companies are maintaining their substantial investments in hardware to enhance and develop their AI infrastructure. Given TSMC’s dominant position in the production of high-performance AI chips, this trend suggests a positive demand outlook for the semiconductor fabrication powerhouse. Investors remain optimistic about TSMC’s prospects in the booming AI chip sector.
However, it is crucial to note that while TSMC is poised to continue achieving success in the manufacturing of AI chips, its stock carries significant exposure to geopolitical risks. The company’s most advanced manufacturing facilities are located in Taiwan, a region that faces ongoing territorial claims from China. TSMC’s pivotal role in the AI race elevates its importance in the geopolitical rivalry between the United States and China, creating a potential landscape for unexpected challenges and complications.
Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keith Noonan holds no positions in any of the stocks discussed. The Motley Fool has investment positions in and recommends Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool suggests the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool maintains a disclosure policy.
