NVIDIA's Earnings Show a Green Light for Taiwan Semiconductor

Most of the money is not made by buying gold during a gold rush, but rather by selling shovels to all those frantically digging. Every once in a while (or sometimes twice) in an economic cycle, a new gold rush comes about, and with it a new set of shovel makers who quietly make all the big money.

Today, the “gold” is AI-driven chips, and the “shovel makers” are the wafer equipment providers and foundry specialists. 

Hyperscaler spending (think cloud giants and AI leaders) has surpassed the $1 trillion mark, mainly due to an increasing number of companies adopting an “AI-first” approach in their business models. What this means is that demand for chips and semiconductors is soaring. Holding over 75% of this entire market is a not-so-little company called Taiwan Semiconductor Manufacturing (NYSE: TSM), and one of its biggest customers just gave everyone a reason to buy it today.

NVIDIA’s Growth: A Guaranteed Check for Taiwan Semiconductor

NVIDIA Corporation (NASDAQ: NVDA) reported its latest set of quarterly financial results, one of the most anticipated in the market, as it is the largest constituent in the S&P 500 index and a large component in many investor portfolios. However, as most of the attention (and money) is focused on NVIDIA, trading the stock can be more challenging than it seems.

But NVIDIA can also act as a gauge to guide investment ideas forward. For example, the company reported data center revenues in the tune of $41.1 billion (56% annual growth), fueled by its Blackwell superchip computer. Because these three-nanometer processing chips are exclusively made by TSMC at advanced nodes, orders translate directly into revenue and pricing power for TSMC.

And that is the greatest (and not so obvious) opening that retail investors can get today for this dynamic duo.

TSM's Valuation Premium: Justified and Strategic

There is a compelling reason for the broader market to be willing to pay up to 11.5x the price-to-sales (P/S) ratio for Taiwan Semiconductor stock today. And that reason is that as NVIDIA’s demand grows it may create bottlenecks for Taiwan Semiconductor, which could result in better pricing power and more beneficial terms for TSM.

Because it’s not just NVIDIA; other hyperscalers—Meta Platforms Inc. (NASDAQ: META) and Microsoft Inc. (NASDAQ: MSFT), for example—also rely on Taiwan Semiconductor for their chip processing power. 

Similar to what happened during the chip shortage of 2020–2022 (when foundries raised prices significantly because automakers, smartphone makers, and data center firms had no alternatives), if demand continues to rise in relation to supply, TSM could charge a premium for its products. And any market with a good head on its shoulders will willingly pay a premium to have access to this future sales growth, hence the high P/S ratio placed on the stock today.

For those who are never comfortable overpaying for a stock, cheap money isn’t always the best money. Institutional investors know this very well, which is why (even at this P/S multiple) $8.6 billion worth of institutional buying has taken place over the past quarter alone.

At the same time, there is also a surprise factor looming for Taiwan Semiconductor, and that is rooted in its future earnings power. Today’s MarketBeat earnings per share (EPS) forecast suggests that the third quarter of 2025 will bring roughly $2.52 in EPS—a small jump of 2% from today’s reported $2.47.

Where the real opportunity lies is the chance for investors to get positioned before a potential earnings beat. When the trickle-down effects from NVIDIA’s rising demand show up on Taiwan Semiconductor’s financials next quarter, a repeat of last quarter’s beat above the $2.13 consensus (16% above) may drive the stock into new 52-week highs.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

The article "NVIDIA's Earnings Show a Green Light for Taiwan Semiconductor " first appeared on MarketBeat.