TSMC stock correction overdone amid reports of Nvidia delays- Citi

Investing.com-- A recent plunge in TSMC’s stock price, on reports of delays in Nvidia’s advanced artificial intelligence chips, was overdone, Citi analysts said in a note, and that the chipmaker’s outlook remained strong. 

TSMC (TW:2330) (NYSE:TSM) shares tumbled some 15% over the past month, and saw steep losses on Monday after media reports said Nvidia’s Blackwell AI chips will be delayed by three months or more due to design flaws. 

Such a scenario presents pressure on TSMC’s earnings, given that NVIDIA Corporation (NASDAQ:NVDA) is a major client for the contract chipmaker. 

But Citi said that despite delays in Nvidia’s most advanced chips, overall demand for chips from the AI industry still remained positive, and that initial technical issues would be just temporary, given that the technology is new.

“We believe TSMC’s solid earnings growth remains intact. Other than robust AI GPU/accelerator demand, we expect its order momentum from CPU, smartphone SoC based on advanced nodes are also intact,” Citi analysts wrote in a note. 

TSMC had clocked stronger-than-expected earnings for the second quarter, and also presented a strong outlook for the year amid robust demand from AI.

But the firm’s stock price plummeted from record highs over the past month, as it was caught up in widespread selling pressure on the technology sector.

While TSMC’s earnings were strong, middling reports from other majors, including Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc (NASDAQ:GOOGL), and Arm Holdings (NASDAQ:ARM), raised doubts over just how much of an earnings boost AI was providing. 

But Citi said the AI-fueled demand outlook for Nvidia, which makes the most advanced chips in the market, remained strong.