Shares of semiconductor giants Broadcom (AVGO 2.66%), Intel (INTC 2.11%), and Taiwan Semiconductor Manufacturing (TSM +0.19%) all marched higher Friday after Bank of America analyst Vivek Arya was quoted encouraging investors to invest in the "generational capex cycle in generative AI infrastructure."
Capex is shorthand for capital expenditures. Broadcom, TSMC, and Intel are chipmakers considered part of said "capex cycle," inasmuch as they produce the semiconductor chips that AI companies must buy if they want their artificial intelligence (AI) programs to function. As of 1 p.m. ET, Broadcom shares were up 2.5%, Intel had risen 3.5%, and Taiwan Semiconductor Manufacturing, also called TSMC, is doing best of all, with a 3.6% gain.
NYSE: TSM
Key Data Points
Why these three AI stocks in particular?
So that's the big picture backgrounding today's moves in semiconductor stocks generally. But why are these three stocks moving specifically? Well, in the case of Broadcom the answer is obvious: Alongside Nvidia, Arya named Broadcom as his top pick among AI stocks.
Intel and TSMC, on the other hand, have additional catalysts worth highlighting.
As Nvidia's go-to company for contract manufacturing of its chips, anything good for Nvidia is assumed to be good for TSMC as well. On top of that, TSMC got some especially good news last night when Bloomberg reported that the company's new advanced 4-nanometer chip manufacturing plant in Arizona is generating "yields" of 4% more usable chips than similar TSMC manufacturing plants back in Taiwan. This fact should translate directly to more revenue and higher profitability for TSMC, prompting a company spokesperson to call the number "highly satisfactory, with a very good yield."
TSMC furthermore promised to begin "volume production" at the plant in early 2025, which will allow the company to capitalize on these efficiency gains, and potentially improve TSMC's chances to benefit from U.S. government subsidies under the Chips Act.
And what about Intel?
Indeed. What about Intel?
I wish I could give better news on this front, but here's the real skinny: Beyond the broad enthusiasm for chips stocks generated by Arya's encouragement, Intel stock seems to be benefiting most today from an update on plans to expand chips production in Ohio. Specifically, the company's website states that "Intel is planning to invest more than $28 billion in the construction of two new leading-edge chip factories in Ohio to boost production to meet demand for advanced semiconductors."
That sounds like good news -- like Intel is moving forward and trying to capitalize on Arya's "generational capex cycle in generative AI infrastructure" just like TSMC is.
But here's the thing: Intel actually announced its $28 billion investment in Licking County, Ohio, back in January 2022, and today's update doesn't change that announcement at all, nor indicate any acceleration in production or the size of the company's investment. Rather, according to Intel's own webpage, the "latest update" on the company's Ohio plans consists of "Photos and b-roll video of the 'Ms. Armstrong' crane [that] were added on Oct. 25, 2024."
So basically, all Intel said today is that the same production plans that have been in place for the past nearly three years are still in place, and unchanged. That hardly seems like a great reason for Intel stock to be moving higher today, especially considering that with less than $1 billion in annual income, Intel is by far the least profitable of these three semiconductor companies -- and the only one burning cash ($12.6 billion over the last 12 months).
Given a choice to invest in any of these three companies, I'd place TSMC stock, at 27 times trailing earnings, cash-rich, and generating copious free cash flow, at the top of the list -- and Intel stock way down on the bottom.
