Taiwan Semiconductor Just Delivered Encouraging News for Nvidia Shareholders

In a time when artificial intelligence stocks and valuations are being called into question, shareholders of Nvidia (NASDAQ: NVDA), the AI chip king, are looking for good news, especially as the company's upcoming earnings report on Feb. 25 approaches. While Nvidia stock has been an incredibly strong performer, it's roughly flat this year and only up about 4.3% over the past six months.

Taiwan Semiconductor (NYSE: TSM) may have just provided the spark Nvidia shareholders were looking for. The massive chip manufacturer just announced that its January sales rose nearly 37% year over year. That number is above the company's historical average and pushed the stock to all-time record levels.

Image source: Nvidia.

Why is this good for Nvidia?

Because Taiwan Semiconductor is the primary manufacturer of Nvidia chips, so strong sales by the company could be indicative of strong demand for Nvidia's chips. Now, keep in mind that Taiwan Semiconductor manufactures chips for other companies, including Advanced Micro Devices, Broadcom, and Qualcomm, but strong chip demand should bode well for Nvidia, given its dominance in the market.

Shareholders should be encouraged. Here's why.

Other positive news out of Taiwan

The positive update from Taiwan Semiconductor is the latest in a string of positive indicators. Analysts at UBS recently noted that Taiwan's Ministry of Finance released January export data, which showed that automatic data-processing (ADP) equipment excluding laptops increased by 8% from December. Normally, January data has shown a declined from December.

Additionally, Taiwan's ADP exports in the fourth fiscal quarter grew 25% from the third quarter. Meanwhile, UBS is only projecting 18% quarterly growth in Nvidia's all-important data center division, which provides infrastructure to power AI workloads.

Now, this doesn't guarantee that Nvidia will have a blowout quarter, and one can never predict what the market will hone in on when Nvidia reports earnings or how it will react. Still, this piece of macro data is positive for Nvidia and could position the company for strong quarterly results, which may get the stock going again.

Now, Nvidia's stock is still up nearly 42% in the past year and over 1,167% in the past five years. But the valuation has also come down significantly, with the stock trading at less than 25 times forward earnings, well below its five-year historical average of close to 35 times forward earnings.

While practically no one can predict near-term catalysts that will drive stock prices, this presents a favorable setup heading into Nvidia's fiscal 2026 fourth-quarter earnings report, and also likely not a bad time for long-term investors to consider buying as well.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.