Good news has been difficult to come by for Nvidia (NVDA 1.56%) investors lately, which is evident from the roughly 10% decline in the company's stock price in the past three months.
The once high-flying artificial intelligence (AI) chip stock has been weighed down by multiple headwinds despite delivering outstanding growth and guiding above expectations when it released its latest quarterly results in November last year. From concerns about a slowdown in its growth on account of weakening AI chip demand to intensifying competition to export-related restrictions to the recent breakthrough claimed by Chinese start-up DeepSeek, a number of factors outside of Nvidia's control have pulled the stock down.
NASDAQ: NVDA
Key Data Points
However, Taiwan Semiconductor Manufacturing's (TSM +0.42%) sales data for January 2025 suggests that investors' concerns about the health of AI chip demand and Nvidia's performance may be overblown. Let's see why that may be the case.
TSMC's sales have shot up impressively in the past three months
Nvidia is a fabless chipmaker, which means that it doesn't own any fabrication plants and simply designs chips. The manufacturing is done by TSMC, the world's leading semiconductor foundry that fabricates chips for fabless chipmakers and consumer electronics companies. That's why the 36% year-over-year jump in TSMC's revenue last month is an indicator that the demand for Nvidia's AI chips hasn't waned.
More importantly, TSMC reported revenue growth of 58% and 34% in the final two months of 2024. As Nvidia's fiscal fourth quarter of 2025 coincides with these three months, there is a solid chance that the chipmaker could exceed Wall Street's expectations when it releases its results later this month.
Of course, Nvidia is not the only customer that TSMC has. However, it is worth noting that Nvidia was reportedly TSMC's second-largest customer in 2023, accounting for 11% of the latter's revenue. Also, recent developments indicate that Nvidia's share of TSMC's revenue may have increased. For instance, Apple, which was TSMC's biggest customer in 2023, noted a 4% year-over-year decline in iPhone shipments in the fourth quarter of 2024.
So, it is likely that TSMC may have produced more chips for Nvidia in the past three months, and that could translate into stronger sales growth for the latter. Another thing worth noting here is that TSMC is expected to increase its advanced packaging capacity this year by around 85% to a range of 65,000 to 75,000 wafers per month to meet the robust demand for AI chips.
Nvidia is expected to get its hands on 63% of this increased capacity. Rivals such as Broadcom and Advanced Micro Devices are projected to be distantly placed in second and third positions with 13% and 8% share, respectively. All this indicates that Nvidia's AI chip supply chain is likely to get stronger in 2025.
Throw in the fact that major cloud computing providers such as Meta Platforms, Microsoft, Alphabet, and Amazon are set to raise their capex substantially this year, and Nvidia's improved supply chain could help it fulfill more orders and sustain its impressive growth. These four tech giants are set to raise their combined capital expenses by 46% in 2025 to a whopping $325 billion as they will continue to spend more money to build out AI infrastructure.
Favorable developments point toward better times for Nvidia stock
The discussion above makes it clear that Nvidia is on track to benefit from a favorable AI chip demand environment. At the same time, the company's focus on bolstering its supply chain to fulfill more demand and the terrific increase in TSMC's revenue of late provide further indication that Nvidia should be able to sustain its healthy growth rate this year.
Analysts expect a 52% jump in Nvidia's revenue to almost $196 billion in the new fiscal year (which has just begun). However, don't be surprised to see Nvidia exceeding that mark, as the incremental capital spending of $102 billion by big tech players in 2025 is going to be higher than the roughly $83 billion incremental spending last year.
Nvidia is in a terrific position to corner the lion's share of this increased capital spending as it is expected to control 85% of the AI chip market this year. As such, a stronger-than-expected showing from Nvidia seems in the cards when it releases its fiscal 2025 fourth-quarter results on Feb. 26, and that could be just the catalyst that this AI stock needs to regain its mojo.
