Why artificial intelligence (AI) chipmaker Taiwan Semiconductor Manufacturing achieved higher prices on Thursday

Shares of Taiwan Semiconductor Manufacturing company (TSM 10.95%)also known as TSMC, charged a price up to 13.4% higher on Thursday. As of 2:13 p.m. ET, the stock was still up 11.4%.

The semiconductor specialist's increase was driven by its quarterly financial results, which were above expectations.

The AI ​​keeps chugging along

After the rapid share price rally that began early last year, many artificial intelligence (AI) stocks have taken a breather as investors take a step back to survey the landscape. Many are looking for clues about the state of ongoing AI adoption, and TSMC's findings offer some clear indicators.

In the third quarter, TSMC reported revenue of 759.7 billion New Taiwan dollars (approximately $23.5 billion), an increase of 39% year over year (or 36% in U.S. dollars). This resulted in a 54% increase in earnings per share (EPS) to NT$12.54 (or US$1.94 per ADR).

Analysts' consensus estimates were for revenue of $23.1 billion and earnings per share of $1.80, meaning TSMC beat expectations and still had room to run.

CFO Wendell Huang said the results were driven by “strong smartphone and AI-related demand,” and a quick look at these segments shows why. Revenue from the company's high-performance computing segment, which includes chips for AI, rose 51% year over year. The ongoing recovery in smartphone sales was also evident, as sales in this segment rose 34%.

Underpinning the AI ​​Revolution

TSMC produces about 90% of the world's most advanced high-end semiconductors, including most used for AI applications. Many investors looked to the semiconductor giant for evidence that demand for AI is still robust – and the results suggest the answer is a resounding “yes.”

Against this backdrop, concerns about a possible slowdown in AI adoption appear unfounded. According to a forecast from Bloomberg Intelligence, the generative AI market is expected to grow at a compound annual rate of 42% over the next eight years to reach $1.3 trillion in 2032. Since the chips that TSMC produces are important hardware for AI, it should continue to thrive.

Additionally, the company trades at 32 times forward earnings, which is a fair price for a company that plays such a crucial role in the AI ​​revolution. Therefore, TSMC stock is a buy.