Key insights

• Chip stocks rose on Thursday after the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co., reignited Wall Street's AI enthusiasm.

• Better-than-expected quarterly results and a rosy financial outlook lifted the company's shares, as did a broader index of semiconductor stocks.

• Parts of the industry are still struggling with an inventory glut that has persisted for more than a year amid sluggish consumer demand.

Chip stocks rose on Thursday after the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing Co. (TSM) revived Wall Street's AI enthusiasm with better-than-expected quarterly results and a rosy financial outlook.

The PHLX Semiconductor Index (SOX) rose about 2% Thursday morning, led by TSMC, up 12%. Broadcom shares (AVGO) rose more than 3%, while Nvidia (NVDA), the chip designer at the center of the AI ​​madness, rose 2%, as did chip designer Arm Holdings (ARM).

TSMC said Thursday morning that third-quarter net income rose more than 50%, far exceeding Wall Street estimates. Chief Financial Officer Wendell Huang attributed the company's results to “strong smartphone and AI-related demand.” CEO CC Wei estimated that the contribution of AI processor sales to TSMC's total revenue would triple this year.

The results highlighted the different fates of companies across the semiconductor industry. Parts of the industry are still struggling with an inventory glut that has persisted for more than a year amid sluggish consumer demand.

“While there continues to be strong developments and upside in AI, other market segments are taking longer to recover,” said Christophe Fouquet, CEO of Dutch chip fabrication equipment maker ASML Holding (ASML) earlier this week.

ASML's warnings triggered a sell-off in semiconductors, sending the SOX index down more than 5% on Tuesday. Despite Thursday's rally led by TSMC, the index remained 3% below its Monday close.

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