TSMC Says AI Chip Demand Is Still Far Above What It Can Supply. That's Why I'd Buy Nvidia Stock.
I'm LongbridgeAI, I can summarize articles.TSMC reported strong Q3 revenue of $46.7 billion, with AI chip demand remaining far above supply capabilities. CEO C.C. Wei indicated no signs of slowdown in AI accelerator growth. Despite this positive supplier news, Nvidia's stock dropped 9%. The article argues Nvidia shares are undervalued compared to TSMC, citing a lower P/E ratio and sustained high growth, suggesting it is a buying opportunity despite market doubts about the longevity of AI spending.
Nvidia (NVDA -1.43%) investors got a new look at the demand for artificial intelligence (AI) chips on Thursday, Oct. 15. Taiwan Semiconductor Manufacturing (TSM -2.28%), which makes chip wafers for Nvidia, posted third-quarter revenue of $46.7 billion -- over the high end of the $44.6 billion to $45.8 billion range management had forecast in July.
And TSMC's chairman and CEO, C.C. Wei, didn't sound worried about what's next.
"[T] he demand actually is still far above our capability today to supply," Wei said on the company's earnings call. He made the comment in an answer where he wouldn't say if that demand comes more from AI accelerators or central processing units (CPUs).
Nvidia stock, though, headed the other way. Shares ended Thursday at $217.23, off around 9% from the record close they set on Oct. 6 ($239.24).
I think the gap between what Nvidia's supplier is reporting and what Nvidia's stock is doing makes the shares worth buying now.
Image source: Taiwan Semiconductor Manufacturing.
TSMC's biggest platform keeps accelerating
Showing how much AI is powering the chipmaker, TSMC's revenue from high-performance computing (the platform that includes AI chips) climbed 22% sequentially in the third quarter. That was faster than the platform's 20% sequential growth in the second quarter. High-performance computing is now 68% of TSMC's revenue, up from 57% in the third quarter of 2025. Overall, TSMC's revenue grew 41% year over year in U.S. dollars. Net income, which TSMC reports in New Taiwan dollars, rose 69%.
Management expects more. TSMC guided for fourth-quarter revenue of $52.3 billion to $54.3 billion. The midpoint is around 14% over the third quarter's total, so the company is calling for another double-digit sequential gain after a 16% climb in the third quarter.
TSMC now sees 2026 revenue growing about 44% in U.S. dollars, up from its July outlook of a little over 40%.
TSM - Taiwan Semiconductor Manufacturing
NYSE · As of 4:00 PM ET 10/16/26
Moneyball Superscore98/100Key data points
Wei also pushed back on any idea that AI chip demand is cooling. He was asked about TSMC's forecast that its AI accelerator revenue would rise at an average yearly rate in the mid- to high-50% range from 2024 to 2029. Wei said "we did not see any sign of slowdown," adding that the rate "probably will be higher."
What does this mean for Nvidia?
TSMC doesn't say how much of its revenue comes from Nvidia. So its report isn't a direct preview of Nvidia's next quarter.
But Nvidia sells chips on both sides of the split Wei wouldn't talk about. Its graphics processing units (GPUs) remain its main business, and last quarter it announced Vera, a CPU made for AI agents.
TSMC's fourth-quarter outlook covers October to December. And because chips take months to move from TSMC's wafers to finished Nvidia products, that forecast arguably says more about Nvidia's next few quarters than about the one ending this month.
And Nvidia's own results point the same way as TSMC's. Revenue rose to $96.2 billion in the second quarter of its fiscal 2027 (which ended July 26, 2026), up 18% from fiscal Q1 and 106% year over year. Management forecast around $108 billion in fiscal Q3, plus or minus 2%.
Of course, a shortage doesn't last forever. TSMC spent around $40.6 billion on capital expenditures through the first three quarters of 2026, and when supply eventually catches up to demand, Nvidia might lose some of its pricing power. But that doesn't look like a problem for the next few quarters.
The stock is cheaper than its supplier's
At around $217, Nvidia's share price is about 14 times the earnings per share analysts expect for its next fiscal year (ending January 2028), on average. At the Oct. 6 record, it was around 15 times expected earnings. TSMC's shares, by comparison, go for about 19 times earnings, based on analysts' average forecast for 2027.
NVDA - Nvidia
NASDAQ · As of 4:00 PM ET 10/16/26
Moneyball Superscore97/100Key data points
Put another way, investors are paying less for every dollar of Nvidia's expected profit than for TSMC's, even though Nvidia's revenue climbed more than twice as fast in each company's latest quarter. The market seems to doubt that Nvidia's growth can last.
Sure, that doubt might be right. If AI spending slows, Nvidia's sales could drop faster than those of a foundry with many kinds of customers. But TSMC's report doesn't show any sign of that yet.
In the end, I'd consider buying Nvidia stock at this price. I'd just keep the stake small. The stock is risky and volatile. After all, the shares dropped 9% in just seven trading days this month.