Nvidia-OpenAI Partnership Fuels Global Chip Stock Surge

Global semiconductor stocks experienced a surge Tuesday following Nvidia’s ambitious announcement of a $100 billion investment in OpenAI, signaling a powerful commitment to advancing artificial intelligence infrastructure.

The proposed collaboration between Nvidia and OpenAI is poised to be transformative, with OpenAI planning to leverage Nvidia’s advanced systems requiring a substantial 10 gigawatts of power. According to Nvidia CEO Jensen Huang, this massive computational undertaking will necessitate between 4 million and 5 million Graphics Processing Units (GPUs), underscoring the scale of AI development and deployment.

This news ignited positive market sentiment across Wall Street and reverberated throughout the global chip sector, providing a boost to companies closely aligned with Nvidia’s supply chain and technological ecosystem.

Taiwan Semiconductor Manufacturing Co. (TSMC), a key manufacturing partner for Nvidia’s chips, saw its shares close 3.5% higher in Taiwan. TSMC’s advanced manufacturing capabilities are crucial for producing the high-performance chips that power Nvidia’s AI solutions.

In South Korea, SK Hynix, a major supplier of High Bandwidth Memory (HBM) chips used in Nvidia’s systems, celebrated a session close more than 2.5% higher. Competitor Samsung also experienced a 1.4% increase, despite not currently supplying HBM chips to Nvidia. The market anticipates Samsung securing approval to enter this space soon, projecting significant future gains for the company.

Japanese equipment suppliers, including Tokyo Electron, a critical provider of semiconductor manufacturing equipment, also closed higher, reflecting the widespread positive impact on the broader supply chain.

“This is undeniably a broad market with a diverse range of suppliers, and the recent activity doesn’t suggest a zero-sum game scenario. Investors appear to recognize that multiple players can benefit from the expanding AI landscape,” Ben Barringer, global technology analyst at Quilter Cheviot, commented to CNBC regarding the breadth of opportunity in the AI sector.

“While this major partnership between Nvidia and OpenAI might present short-term challenges for Nvidia’s immediate competitors, it unequivocally affirms the vitality and robust growth potential of the AI investment landscape.” The significant capital allocation suggests continued bullishness on the future trajectory of AI development and its commercial applications.

The chip stock rally that originated in Asia extended its influence to European markets, although the performance was more nuanced across the continent.

STMicro, Infineon, and BE Semiconductor all showed gains in early European trading, mirroring the positive momentum from Asia. These companies play critical roles in various aspects of the semiconductor industry, from designing and manufacturing chips to providing essential equipment.

However, semiconductor equipment firm ASM International reported that it anticipates its fourth-quarter revenue to fall short of previous projections, leading to a significant decline in its share value. This announcement exerted downward pressure on other chip equipment manufacturers, like ASML whose advanced lithography machines are fundamental for producing the most sophisticated semiconductors. Industry analysts attribute ASM International’s revised outlook to shifting capital expenditure priorities among certain customers, rather than a fundamental weakening of overall demand.

“In Europe, the expanding AI ecosystem is especially beneficial for equipment vendors” such as ASML and ASMI, “which stand to gain from the continued strong demand from TSMC, the primary manufacturer of NVIDIA’s most advanced chips,” noted Stephane Houri, head of equity research at ODDO BHF, in a note distributed to clients on Tuesday. The long-term outlook for these companies remains positive, supported by increasing demand for cutting-edge semiconductor technologies powering AI advancements.