What to Expect From Nvidia in the Coming Months? Taiwan Semiconductor Just Offered Investors a Clue.

As the artificial intelligence (AI) story began to unfold, Nvidia (NASDAQ: NVDA) quickly emerged as the leading character. And this has remained the case chapter after chapter. Nvidia got into this market early, developing high-powered graphics processing units (GPUs) to specifically serve the needs of AI. In the earlier days, this mainly entailed training models on vast quantities of information.

All of this resulted in explosive earnings growth for Nvidia. And investors, eager to benefit from this growth story, bought the shares like hot cakes. This helped Nvidia stock to soar -- it climbed more than 1,100% over the past five years.

But, in recent times, Nvidia's performance has been lackluster. Part of this is unrelated to the company and the AI industry: Investors have worried about the U.S. economy and the turmoil in Iran. That said, other pressures have been directly linked to Nvidia. For example, some investors have wondered whether demand for AI will weaken or if competition may hurt Nvidia's growth.

The big question is: What should we expect from Nvidia in the coming months? Taiwan Semiconductor Manufacturing (NYSE: TSM) just offered investors a clue.

Image source: Getty Images.

Nvidia and TSMC

First, it's crucial to understand the relationship between Nvidia and TSMC. While Nvidia is the world's biggest designer of AI chips, it doesn't actually make those chips. Instead, it turns to TSMC for that. And most other chip designers -- from Advanced Micro Devices to Broadcom -- do the same.

TSMC communicates extensively with these customers and also with the customers of these customers: Here, I'm referring to cloud service providers that go to companies like Nvidia for systems. And these cloud players are in touch with the final customer: the company that needs these systems to run AI workloads. So, TSMC has its finger on the pulse of the AI market -- and may offer us some insight into what's going on now and what's to come.

This week, TSMC reported a 58% increase in first-quarter profit and said AI chip demand led the gain. This was the company's fourth straight quarter of record-level profit.

This is positive for TSMC, as it shows designers like Nvidia are rushing to the company for their manufacturing needs. Now, let's get to the news that's significant for Nvidia.

The shift into agentic AI "is driving the need for more and more computation, which supports the robust demand for leading-edge silicon," said chief executive officer C.C. Wei. He noted that TSMC's "conviction in the multi-year AI megatrend remains high."

The need for GPUs

This, particularly Wei's first comment, is an extremely positive sign for Nvidia because it shows that, first of all, the need for GPUs is growing as the AI boom advances -- not shrinking. So Nvidia's revenue opportunity actually is broadening.

Second, the demand for leading-edge chips should favor Nvidia. Here's why. Nvidia offers the top-performing GPUs of the moment, so it's very likely that customers looking for a cutting-edge chip will turn to Nvidia for at least some of their chip needs. And since Nvidia has pledged to update its chips on an annual basis, it may be very difficult for rivals to upset this giant's position. Nvidia also has demonstrated its ability to keep this promise, launching Blackwell and Blackwell Ultra over the past year and a half and now preparing to release the Vera Rubin system in 2026.

So, without even speaking directly about Nvidia, TSMC offered investors a valuable clue about what's ahead for the chip giant. TSMC is seeing the transition to agentic AI, and this is leading to a greater need for the most powerful of products.

This means that in the quarters to come, we should expect ongoing strength from Nvidia -- and sustained market leadership. All of this suggests Nvidia -- and its shareholders -- could go on to score a major win in this next phase of the AI revolution.

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