Chip stocks rally as TSMC's AI-powered outlook impresses investors

(Reuters) – U.S. chip stocks rose before the bell on Thursday after strong sales forecast from industry leader TSMC (TSM, 2330.TW) boosted investor optimism about demand for processors used in artificial intelligence applications.

Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, raised its expectations for annual revenue growth and said AI chip sales would account for a mid-teens percentage of its full-year revenue.

The forecast from the leading maker of advanced AI chips boosted investor confidence in the prospects of chipmakers, whose market values ​​have soared over the past two years due to a surge in chip spending by major technology companies.

U.S.-listed TSMC shares rose 7%, with the company's market capitalization expected to exceed $1 trillion if premarket gains continue.

TSMC customer and AI chip leader Nvidia (NVDA) and smaller rival AMD (AMD) both rose more than 2%. Network chip maker Broadcom (AVGO), smartphone semiconductor maker Qualcomm (QCOM) and memory chip maker Micron (MU) rose between 1.5% and 3%.

The shares of the ailing chip manufacturer Intel (INTC) also rose slightly. Intel has been expanding its chip manufacturing facilities to compete with TSMC in advanced contract manufacturing, a venture that analysts say will take years.

TSMC's outlook also gave investors some respite after sharp forecast cuts from chipmaker giant ASML raised fears of a slower-than-expected recovery in demand for semiconductors not used in AI.

U.S.-listed shares of TSMC are up more than 80% so far this year, while Nvidia has more than doubled as investors pour billions of dollars into semiconductor stocks amid booming pick-and-shovel trading on Wall Street .

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Maju Samuel)