TSMC Just Delivered Fantastic News for Nvidia Shareholders

Nvidia (NASDAQ:NVDA) has delivered a winning performance in the artificial intelligence (AI) market, becoming the world's biggest AI chip designer and generating record earnings well into the billions of dollars. In the latest quarter, revenue topped $96 billion, and net income reached $59 billion. The company recognized the AI opportunity early and made this market its focus. This clearly was a wise bet as it's turned out very well for Nvidia and the company's shareholders. The stock has soared 900% over five years.

But one element has weighed on the stock in recent months, and that is the general concern about a potential AI slowdown. Investors have worried that big tech companies are spending too much on a build-out, and that the revenue opportunity may fall short. Such a scenario would be terrible for Nvidia, considering that more than 90% of its total revenue comes from data center sales.

Nvidia and peers have spoken of strong demand, which should reassure investors at least somewhat. And now, an important message from Taiwan Semiconductor Manufacturing (NYSE:TSM) offers us even more very recent visibility on the situation. TSMC just delivered fantastic news for Nvidia shareholders. Let's check it out.

Image source: Getty Images.

Nvidia's GPUs

So, first, a quick catch-up on the Nvidia story so far and a look at the role TSMC plays in the AI space. As mentioned, Nvidia was an early player in AI, shifting the focus of its graphics processing units (GPUs) about a decade ago to this area. GPUs offer the compute power needed for crucial AI tasks, such as the training of large language models. Nvidia didn't stop here and instead built out its capabilities to include other products and services, from networking to enterprise software. Today, Nvidia is a full-stack AI company and even has designed platforms for specific industries, from healthcare to automotive.

At the same time, Nvidia has branched out its presence across the AI market. Most recently, it announced its offer to acquire AI open-source platform Hugging Face. So, Nvidia has built an AI empire, allowing it to benefit in many ways from the growth of this technology.

As for TSMC, it plays a very key role in the world of AI. That's because this company manufactures the AI chips designed by the world's market leaders, from Nvidia to Advanced Micro Devices. Though we may think of Nvidia and AMD as "chipmakers," they actually are "chip designers" — and they rely on TSMC to produce their products.

TSMC's visibility in the AI market

This has resulted in enormous revenue gains for TSMC, as it benefits from growth at many companies — not just one. And this position also gives TSMC great visibility in the market and on what's ahead. The company is in contact with its customers, such as Nvidia, as well as their customers, the cloud service providers. And because of this, TSMC understands the levels of demand and has a solid idea of what's to come.

Now, let's consider the positive news for Nvidia shareholders. TSMC reported record revenue for August, driven by demand for AI chips. Revenue of more than $16 billion represented an increase of 53% year-over-year and 10% from July. And January to August revenue climbed nearly 40% year over year. This reinforces TSMC's ongoing message in recent quarters: AI demand remains consistently high, and this isn't just a general build-out to serve potential business but a build-out to serve customers today.

This fresh report is great news for Nvidia shareholders as it confirms what the chip designer noticed in recent quarters, too — and what cloud giants such as Amazon and Alphabet have said during their latest earnings calls.

This momentum in August, the first full month of Nvidia's fiscal third quarter, offers Nvidia shareholders reason for optimism regarding the company's growth in this period. Even if Nvidia stock doesn't take off immediately, this is one more element that offers us reason to be optimistic about the chip leader in the weeks to come and over time.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.