Since generative artificial intelligence (AI) burst onto the scene roughly three years ago, Nvidia (NVDA 1.47%) stock has been in the limelight. The company is the leading supplier of graphics processing units (GPUs), the advanced computer chips that underpin the technology. The unprecedented demand for its high-end processors fueled blistering revenue and profit growth, making it the world's most valuable company, with a market cap of $4.6 trillion. Many experts believe AI adoption is just beginning.
However, some are wary of the fading buzz and uneven adoption, and are looking for confirmation that AI growth will continue. Given its epic three-year run, it's easy to see why some investors have grown hesitant.
Taiwan Semiconductor Manufacturing (TSM 4.47%), commonly known as TSMC, just provided the most convincing proof yet that demand for AI remains robust.
Image source: Nvidia.
Record monthly sales
TSMC has earned bragging rights as the world's most advanced chip foundry, resulting in its billing as the world's largest contract chipmaker. It controls roughly 71% of the global chip market and manufactures more than 90% of the most advanced semiconductors, making it a closely watched bellwether for AI demand.
When CEO C.C. Wei released the company's monthly sales figures, investors were taken aback. In January, TSMC delivered net revenue of NT$401.26 billion (roughly $12.7 billion), which jumped 37% year over year and was a 20% increase from December. This marked the highest monthly sales in TSMC's history, as demand for advanced processors kicked into overdrive.
TSMC provides the most advanced chips for AI, high-performance computing (HPC), and smartphones, so it has its finger on the pulse of tech industry demand. While the results are undoubtedly positive for TSMC investors, they also have broader implications.
NYSE: TSM
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Connecting the dots
Most AI processing takes place in data centers, which is Nvidia's home turf. The company holds a dominate 92% of the data center GPU market, according to IoT Analytics. The unparalleled demand for its chips makes Nvidia one of TSMC's most important clients. Moreover, while Apple has long been TSMC's largest customer in terms of sales, recent reports suggest that Nvidia is poised to take the crown from Apple sometime in 2026.
Taking a step back, TSMC's results suggest strong ongoing demand for AI-centric chips and, by extension, strong demand for Nvidia's GPUs.
The tech industry is embracing AI, fueled by strong demand from customers. This is driving a data center boom, with spending of $3 trillion to $4 trillion expected by 2030. GPUs are the single biggest cost driver of data center spending, accounting for roughly 39% of total costs. As the leading provider of data center GPUs, Nvidia will likely be the beneficiary of a significant portion of that spending.
The company is scheduled to report the results of its fiscal 2026 fourth quarter (ended Jan. 26), and anticipation is high. Nvidia is guiding for year-over-year revenue growth of 65%, which would mark an acceleration from the 62% growth in Q3.
NASDAQ: NVDA
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Is Nvidia stock a buy?
For investors, there's clear upside. Nvidia is one of the most highly rated stocks on Wall Street. Of the 63 analysts who offered an opinion in February, 94% rate it a buy or strong buy. Furthermore, an average price target of $254 implies potential upside of 33% from Monday's closing price.
Evercore ISI analyst Mark Lipacis is more bullish than his Wall Street peers, with a $352 price target on Nvidia, or potential upside of 85%. The analyst calls Nvidia the "Top Pick" for 2026, thanks to the "tectonic shift to parallel processing."
Nvidia stock has gained 746% over the past three years (as of this writing), driven higher by blistering demand for AI. Despite that significant run-up, the stock is still surprisingly affordable at less than 25 times forward earnings.
Given Nvidia's significant market share, strong demand -- as evidenced by TSMC's robust results -- and a stellar rating from Wall Street, I'd argue the company is well-positioned to continue benefiting from the accelerating adoption of AI.
