Taiwan Semiconductor Manufacturing Co. surged to record highs Thursday, adding nearly $40 billion to its market value in a single trading session after its better-than-expected earnings reignited investor enthusiasm for artificial intelligence and lifted markets worldwide.
TSMC shares jumped 9.8% to close at $172.53, their best performance since December 2022, after the world’s largest contract chipmaker delivered a stellar quarterly report showing insatiable demand for advanced semiconductors that power generative AI applications. This remarkable performance triggered a broader tech rally, with the Nasdaq Composite climbing 1.5% and the S&P 500 rising 1% as optimism spread across markets.
“What we’re witnessing is a validation of the AI investment thesis that has driven markets for the past 18 months,” says Michael Antonelli, managing director at Baird. “TSMC’s results confirm that demand for advanced chips isn’t just hype—it’s translating into tangible financial results that could extend well into 2025 and beyond.”
The chipmaker’s stunning performance came after reporting second-quarter profit that surged 33% from a year earlier, significantly beating analyst expectations. More importantly, TSMC raised its full-year revenue growth forecast to more than 30%, a dramatic increase from its previous projection of about 21-26%, signaling robust demand for its most advanced chip technologies.
TSMC’s CEO C.C. Wei attributed the improved outlook directly to the AI boom, telling investors on the earnings call that “high-performance computing demand continues to be fueled by AI applications.” This statement resonated throughout global markets, with investors interpreting it as evidence that the AI revolution has genuine staying power.
The surge rippled across the semiconductor industry. Nvidia, which designs the AI chips that TSMC manufactures, jumped 4.2% to $131.88, while other chip stocks like AMD and Broadcom gained 4.3% and 2.7% respectively. The Philadelphia Semiconductor Index climbed 3.3%, marking its best day since early June.
Federal Reserve data indicates that U.S. chipmaking capacity increased by 8% in the second quarter, the fastest growth rate in over two decades, underscoring the sector’s expansion as companies race to meet AI-related demand. This capacity growth aligns with TSMC’s own aggressive capital expenditure plans, with the company maintaining its $30-32 billion investment target for 2024.
Market strategists now view TSMC’s results as potentially marking the beginning of a new phase in the AI investment cycle. “We’re moving from speculative AI enthusiasm to concrete evidence of revenue growth,” notes Sandra Thompson, chief investment officer at Meridian Capital Partners. “TSMC’s report suggests the economics of AI are starting to materialize in ways that could justify elevated valuations across the sector.”
The implications extend beyond technology. Bank stocks rallied as investors interpreted TSMC’s strong outlook as a sign the economy might achieve a soft landing rather than recession. JPMorgan Chase rose 1.2%, while Bank of America added 1.9% following their own solid earnings earlier in the week.
For long-term investors, TSMC’s performance offers a window into the semiconductor landscape through 2025. The company expects significant revenue contributions from its 3-nanometer chip technology, which commands premium prices and higher margins. TSMC also revealed that its next-generation 2-nanometer chips remain on track for production in 2025, with major customers already securing capacity.
“What’s particularly notable about TSMC’s forecast is the visibility it provides into 2025,” explains Richard Chen, semiconductor analyst at Davidson Research. “Their order backlog and customer commitments suggest this isn’t a temporary spike but rather sustained demand growth that could extend well into next year and beyond.”
This outlook contrasts with previous semiconductor cycles, which typically showed boom-and-bust patterns. Instead, the AI-driven demand appears more durable, supported by massive capital investments from cloud providers and tech giants racing to deploy increasingly sophisticated AI models.
Treasury yields climbed alongside stocks, with the benchmark 10-year yield rising to 4.19%, reflecting market confidence in continued economic expansion. This simultaneous rise in stocks and yields suggests investors are growing more comfortable with the prospect of higher-for-longer interest rates as long as corporate earnings remain robust.
TSMC’s results also carry geopolitical significance. As tensions between the United States and China persist over semiconductor technology, TSMC’s expanding global footprint—including new facilities in Arizona and Japan—highlights its strategic importance to the global economy.
The market reaction to TSMC’s earnings offers a counterpoint to recent concerns about AI investment returns. Just weeks ago, investors questioned whether companies could monetize their massive AI expenditures. TSMC’s results suggest that at least for key infrastructure providers, the financial benefits are materializing sooner than skeptics expected.
For average investors watching these developments, the implications are clear but nuanced. While TSMC’s performance reinforces the long-term AI investment thesis, analysts caution that selectivity remains crucial. “Not every company with an AI strategy will succeed,” warns Thompson. “The biggest winners will be those providing the essential infrastructure—like TSMC—and those most effectively deploying AI to create genuine competitive advantages.”
As markets digest these developments, attention now turns to forthcoming earnings from other AI beneficiaries, including Microsoft and Alphabet next week. These results will provide additional clarity on whether the AI investment cycle is indeed accelerating into 2025, potentially setting the stage for sustained growth across technology and adjacent sectors.
