Blackwell Demand to Benefit Both Nvidia and Taiwan Semiconductor. Is It Time to Buy Both Stocks?

According to recent reports out of Taiwan, the demand for graphic processing units (GPUs) based on Nvidia‘s (NASDAQ: NVDA) next-generation Blackwell architecture is so robust that the chipmaker has increased its Blackwell orders at its primary semiconductor contract manufacturer Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC for short, by 25%.

Let’s take a closer look at the demand for Blackwell chips and the impact it could have on both Nvidia and TSMC.

Insatiable demand for Blackwell

A report from Taiwan’s Economic Daily News indicates that TSMC is soon about to start Blackwell GPU production using its 4-nanometer technology and that due to customer demand, Nvidia increased its order by 25%. The publication also states that demand for Nvidia terminal server cabinets also surged, with shipments now expected to rise to 60,000 units, up from a prior estimate of 40,000. Most of the terminal shipments are expected to be Nvidia’s GB200 NVL36 model, which includes 36 GB200 Superchips, 18 Grace CPUs, and 36 enhanced B200 GPUs, at a cost of around $1.8 million.

The news follows analyst reports from earlier this month that channel check data — independent stock analysis that examines a company’s distribution channels — was indicating very robust demand for Blackwell-based chips and rack-scale systems. Analysts from UBS, Keybanc, and Wolfe Research all cited stronger-than-expected Blackwell demand as reasons for raising their Nvidia price targets.

UBS took its target from $120 to $150, believing the chipmaker could generate $5 in earnings per share next year. Keybanc, meanwhile, raised its target price from $130 to $180, believing the company could generate $200 billion in data center revenue in 2025. Wolfe upped its target from $125 to $150 saying its sees 50% or more GPU growth for the company.

While channel check data is not perfect, where there is smoke there tends to be fire, and with so many sources citing strong Blackwell demand and cloud computing companies racing to build out artificial intelligence (AI) infrastructure, it seems pretty safe to say that demand for Blackwell GPUs and rack-scale systems does indeed look insatiable.

Given this, both Nvidia and TSMC look poised to show very strong growth next year.

Can investors still buy Nvidia and TSMC stock?

Shares of both Nvidia and TSMC have had strong runs. TSMC stock is up over 300% the past five years, while Nvidia stock is up over 2,500%, which is just incredible. However, both stocks are still reasonably valued. Nvidia currently trades at a forward price-to-earnings (P/E) ratio of about 43 times, while TSMC trades at about 27 times. Given their strong growth prospects, these multiples are not expensive.

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In fact, investments in these stocks are both bets that the demand for GPUs to help build out AI infrastructure will continue to grow strongly. With Nvidia looking to push its architecture innovation to about once a year, demand and pricing should remain strong well into the future.

Nvidia is already working on its successor to Blackwell, called Rubin, which it plans to launch late next year. The company has a wide moat due to its CUDA (Compute Unified Device Architecture) software platform, so together with its continual innovation push, I don’t see any company threatening its leadership position anytime soon.

TSMC, meanwhile, should continue to benefit from Nvidia’s success and the ongoing AI infrastructure buildout, as well as competitors chasing Nvidia and looking to develop their own GPUs. The company also looks poised to take some price hikes, while it continues to improve its production technology. It is looking to move down to 2-nanometer production technology, which will allow for increased speed and lower power consumption of the chips. Smaller chips also allow more to be put onto a wafer, saving costs and increasing capacity.

TSMC’s largest customer, Apple, has reportedly already been planning to lock up all its 2-nanometer production capacity, which shows that the company is not just riding Nvidia’s coattails. With companies battling it out to get capacity and use TSMC’s latest technology, the company finds itself in a strong position moving forward.

All in all, the Blackwell demand news helps counter the argument that AI chip demand could evaporate after the initial rush of orders. With this risk seemingly off the table for now, this looks like a great opportunity to buy both stocks.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Blackwell Demand to Benefit Both Nvidia and Taiwan Semiconductor. Is It Time to Buy Both Stocks? was originally published by The Motley Fool