While Nvidia is virtually the only game in townfor the graphics processing units, or GPUs, that Big Tech and other AI companies need to train their models, it doesn’t make the chips it designs and sells. That task falls to TSMC, which controls roughly 90% of the market for advanced chip manufacturing, also known as the foundry business.

Thus, much as with Nvidia, TSMC’s earnings serve as a bellwether for the industry, with its performance having a major impact on both suppliers and clients. And based on TSMC’s third quarter, the AI boom has plenty of room to run.

The company said demand for the company’s three- and five-nanometer chips, which no competitor can currently match, helped drive Q3 revenue to $23.5 billion, up 36% from last year. It expects sales to be even hotter to close the year, with the company issuing revenue guidance between $26.1 and $26.9 billion for the fourth quarter.

That news helped boost investor confidence in other chipmakers. Nvidia’s stock gained about 3% Thursday morning, while shares of AMD, Broadcom, Micron, and Qualcomm also rose.

Geopolitical concerns weigh on chip sector

It’s not been all good news for the industry this week, however. Shares of Nvidia and other chipmakers dipped Tuesday after Bloomberg reported the Biden administration is considering increased restrictions on AI chip exports.

The talks focused on deep-pocketed countries in the Persian Gulf, such as Saudi Arabia and the United Arab Emirates. These nations will presumably be massive customers for chipmakers as countries race to develop their own artificial intelligence infrastructure, often referred to as sovereign AI.

The Biden administration has already restricted the flow of AI chips from Nvidia, AMD, and other chipmakers to more than 40 countries across the Middle East, Africa, and Asia to prevent them from being diverted to China, which the U.S. is battling for semiconductor supremacy.

Similar restrictions have heavily impacted ASML, which supplies semiconductor equipment to the likes of TSMC. The Dutch company’s shares plunged 16% on Tuesday after it reported falling sales amid new U.S. and Dutch export restrictions on shipments to China, a market that accounted for almost half of its business in Q2.

Angelo Zino, a senior tech equity analyst at CFRA Research, noted the U.S. presidential election in November is bound to shake up the geopolitical landscape and affect export controls. Comments made in July by former President and Republican nominee Donald Trump, for example, sparked fresh doubt about America’s commitment to defend Taiwan from Chinese aggression.

“We think investors need to get comfortable with greater geopolitical pressures impacting chipmaker businesses,” he wrote in a recent note.

https://fortune.com/2024/10/17/tsmc-joins-1-trillion-club-as-q3-earnings-spark-chip-sector-rally/