Why shares of Taiwan Semiconductor, ASML and other artificial intelligence (AI) semiconductors rose on Thursday

Since the beginning of last year, it has increasingly focused on the semiconductor industry. Investors have been excited by recent developments in artificial intelligence (AI), which has sparked a flurry of activity in the space. These powerful algorithms are heavily dependent on hardware featuring the most advanced processors that have underpinned much of the industry. However, after a sharp acceleration, many AI stocks have been treading water over the past few months as investors waited for evidence that the trend had room to run.

With this as a background, it is worth noting that in Thursday’s trading, Taiwan Semiconductor Manufacturing (TSM 2.76%) increased by 1.9%, ASML Holding (ASML 4.42%) increased by 3.7% and Indie Semiconductor (IND 8.89%) was up 7.4% at 12:46 a.m. ET.

A check of all the usual suspects — regulatory filings, financial reports and changes in analyst price targets — turned up nothing in the way of company-specific news to explain those stock price gains. This suggests that investors were reacting to financial results from another player in the AI ​​revolution, and that the news was good.

Image source: Getty Images.

A flurry of activity

Micron technology (MU 14.79%) released its fiscal 2024 fourth quarter report after the closing bell on Wednesday, and investors let out a collective cheer. In the period ended Aug. 29, the computer memory specialist’s revenue rose 93% year-over-year to $7.75 billion — a company record — as it grew sequentially by 14%. This resulted in adjusted earnings per share (EPS) of $1.18, much improved from the loss of $1.07 per share in the year-ago quarter. Driving these results was increased demand for high-bandwidth memory of the kind used in data centers and AI, which boosted Micron’s profit margins.

The results beat Wall Street analysts’ consensus expectations for revenue of $7.65 billion and adjusted EPS of $1.11.

It wasn’t just the robust results that drove the stock higher, as Micron’s forecast suggested that growth would continue. For its fiscal 2025 first quarter, management is targeting revenue of $8.7 billion, which would equate to 84% year-over-year growth, and adjusted EPS of $1.74, which would be an increase of 83%.

Management cited strong AI data center demand to drive sales growth for DRAM memory and NAND flash-based storage.

Subsequent growth in other stocks in the chip space suggests that investors view Micron’s report as compelling evidence that demand for AI and the hardware to support it is underway. They also clearly see these developments as positive for a wide range of companies in the AI ​​space.

A positive for chip makers

Micron’s robust results should help dispel any notion that demand for AI is waning. It’s also no surprise that each of the companies in our trio has a specialty related to the specific types of semiconductors that will benefit from the growing adoption of AI.

• Taiwan Semiconductor Manufacturing is the world’s largest third-party chipmaker. Strong demand for the world’s most advanced chips is fueling the foundry pipeline and strong growth.
• ASML Holding is the only company capable of building the advanced lithography systems that chipmakers must use to produce next-generation semiconductors, so it also benefits from these secular tailwinds.
• Indie Semiconductor specializes in the types of processors used in automobiles that power advanced driver assistance systems, as well as various connected car and in-cabin systems. It also develops customized AI solutions for car manufacturers.

Evidence suggests that the accelerated adoption of AI will continue to increase the fortunes of companies in the semiconductor space. However, it’s worth noting that not all AI stocks are created equal.

From a valuation perspective, Taiwan Semiconductor and ASML are cheap, trading at 22 times and 25 times forward earnings, respectively. Indie Semiconductor, on the other hand, is not profitable, making it a much riskier investment.

That said, each of these stocks has intriguing potential, especially given the continued opportunities in the AI ​​space.