Why AMD and Taiwan Semiconductor Stocks Followed Nvidia Higher Today

Taiwan Semiconductor Manufacturing Company Limited is a Taiwanese multinational semiconductor contract manufacturing and design company.
Headquarters: Shinju Science Park
Founder: Jean Morris
Date of establishment: 1987
Number of employees: 65,152

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The U.S. Secretary of Commerce reminds investors that the federal government supports a sweeping shift in how and where chips are made.

 

What happened

Nvidia (NVDA 14.02%) is getting much of the credit for the gains in Taiwan Semiconductor Manufacturing (TSM 3.74%) and Advanced Micro Devices (AMD 4.10%) shares today. Nvidia's encouraging fourth-quarter report is sending its stock higher on Thursday, and since AMD and Taiwan Semiconductor are in the same business, they are likely catching the same tailwind.

 

But that's not the only reason AMD and TSMC shares were up 3.1% and 3.8%, respectively, as of 1:58 p.m. ET on an otherwise tepid day for the market. Also boosting these tickers is the chipmaking initiative started by last year's passage of the CHIPS and Science Act -- and in particular, comments by Commerce Secretary Gina Raimondo on domestic chipmaking today.

 

So what

Nvidia's fourth-quarter earnings beat is the main reason the stock was rallying as much 15% as of midday on Thursday. And that made it easier for related stocks to move higher.

 

But the three companies aren't that closely related. Data center processors are the only real bright spot in Nvidia's fourth-quarter report, accounting for more than half of the top line, and the only business to show year-over-year growth last quarter. AMD does some business in data center processors, but it drives less than one-third of its sales. TSMC doesn't make any branded processors of its own, but instead manufactures other companies' tech.

 

Much of today's stock boost, therefore, can be attributed to the growing governmental support for the U.S. chipmaking industry.

 

On Wednesday, Raimondo said, "What we're out to do here is to ensure that at the end of implementation, the United States of America is the only country in the world where every company capable of producing leading-edge chips will have a significant research and development and high-volume manufacturing presence in our country." Today, she said much the same.

 

The CHIPS and Science Act is backed by $280 billion worth of funding, with $50 billion of that earmarked for Raimondo to hand out in support of research on chip design and manufacturing.

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Now what

Government funding alone doesn't guarantee profitable growth for any company in the chipmaking business. Nvidia, AMD, and TSMC will still bear the bulk of the risk for establishing manufacturing within the United States.

 

But U.S. political and financial support for chipmaking self-sufficiency has arguably never been stronger. Given that domestic chip foundries ultimately solve several logistical challenges for the industry's top names -- and potential problems in the future -- Raimondo's comments should be considered bullish for all three of the aforementioned tickers.

 

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