Why Nvidia and TSMC Are Set for Another AI Stellar Year

Published Date : 11/01/2025 

With major companies like Microsoft set to invest heavily in AI data centers, the demand for powerful AI chips from Nvidia and TSMC is expected to skyrocket. 

The artificial intelligence (AI) trend has significantly boosted the share prices of Nvidia and Taiwan Semiconductor Manufacturing (TSM) over the past year.

The stocks of these two chipmakers rose by 204% and 121%, respectively, far outpacing the 35% gains of the PHLX Semiconductor Sector index.

The primary driver of these gains is the massive demand for powerful chips capable of handling AI workloads in data centers, with major cloud service companies and governments deploying large quantities of these AI-specific semiconductors.

Market research firm Gartner estimates that global public cloud spending grew by 19.2% in 2024 and forecasts an even faster growth rate of 21.5% in 2025.

Evidence for this trend is already emerging.

In a recent blog post, Microsoft Vice Chairman and President Brad Smith announced that the company plans to invest approximately $80 billion in AI-enabled data centers to train AI models and deploy cloud-based applications worldwide.

This massive investment points to a strong year for Nvidia and TSMC.

Microsoft's first-quarter fiscal 2025 results, ending September 30, revealed capital expenditures of $14.9 billion on property, plant, and equipment.

This suggests an even higher level of quarterly capital expenditure spending — around $22 billion on average — for the rest of the fiscal year.

Microsoft’s total capital expenditure in fiscal 2024 was $55.7 billion, indicating a more than 43% increase.

The tech giant has made it clear that the majority of this spending will go toward building AI data centers, which will increase demand for AI chips designed by Nvidia and manufactured by TSMC.

Microsoft, however, is not alone in this trend.

Meta Platforms, for example, is expected to report total 2024 capital expenses in the range of $38-$40 billion, with plans for significant growth in 2025.

According to estimates from Morgan Stanley, the combined spending of major cloud computing players like Microsoft, Meta, Amazon, and Alphabet could reach $300 billion in 2025, up from around $200 billion in 2024.

The addressable market for AI chips is set to expand considerably this year.

Both Nvidia and TSMC are in a strong position to meet this demand.

Microsoft CEO Satya Nadella recently remarked that the company is no longer constrained by AI chip supply.

Nvidia CFO Colette Kress stated during the company's November earnings call that Nvidia is on track to exceed its previous Blackwell revenue estimates due to increased supply chain visibility, thanks to TSMC's significant ramp-up in AI chip production capacity.

TSMC is expected to double its advanced chip packaging capacity in 2025 to 75,000 wafers per month, with Nvidia reportedly allocated 60% of this increased capacity.

This positions both companies to capitalize on the impressive increase in capital spending by major cloud providers.

Analysts are optimistic about the future earnings growth of both companies.

They expect Nvidia's earnings to increase by 50% in fiscal 2026 to $4.43 per share, while TSMC's earnings are forecasted to jump by 28% in 2025 to $9.06 per share.

The combination of increased capital spending by cloud service providers on AI data centers, along with Nvidia and TSMC's focus on quickly adding capacity, could lead to another year of impressive gains that may exceed Wall Street's current expectations. 

Frequently Asked Questions (FAQS):

Q: Why are Nvidia and TSMC's stocks performing so well?

A: Nvidia and TSMC's stocks have seen significant gains due to the high demand for AI chips used in data centers. Major tech companies like Microsoft, Meta, and others are investing heavily in AI infrastructure, driving the need for these powerful semiconductors.

Q: What is Microsoft planning to invest $80 billion in?

A: Microsoft plans to invest approximately $80 billion to build AI-enabled data centers, which will be used to train AI models and deploy cloud-based applications worldwide.

Q: How much is the global public cloud spending expected to grow in 2025?

A: Gartner forecasts that global public cloud spending will grow by 21.5% in 2025, up from 19.2% in 2024.

Q: What is TSMC's role in meeting the demand for AI chips?

A: TSMC is doubling its advanced chip packaging capacity in 2025 to 75,000 wafers per month and has allocated 60% of this increased capacity to Nvidia, helping to meet the growing demand for AI chips.

Q: What are the earnings growth expectations for Nvidia and TSMC in 2025 and 2026?

A: Analysts expect Nvidia's earnings to increase by 50% in fiscal 2026 to $4.43 per share, and TSMC's earnings to jump by 28% in 2025 to $9.06 per share. 

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