Since April 1, shares of NVIDIA (NVDA Quick QuoteNVDA - Free Report) and Taiwan Semiconductor Manufacturing Company (TSM Quick QuoteTSM - Free Report) , or TSMC, have gained 23.5% and 19.7%, respectively, driven by accelerating AI compute demand and persistent supply tightness across advanced semiconductors.

NVIDIA has once again emerged as the frontrunner in AI demand after reporting fiscal first-quarter 2027 revenue growth of 85%, as hyperscalers accelerated “AI factory” deployments and agentic AI workloads. At the same time, Taiwan Semiconductor has been benefiting from surging orders for 3nm wafers and advanced packaging technologies such as CoWoS, prompting the company to lift its 2026 capital spending target.

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From investors’ point of view, the rally could continue as demand for advanced AI chips and packaging technologies is expected to exceed available supply through 2027. However, export restrictions to China, rising energy and chemical costs, and geopolitical tensions remain key stumbling blocks.

Let’s delve deeper.

Driving Factors for NVIDIA

Massive AI Infrastructure Spending: NVIDIA’s momentum continues to be powered by unprecedented hyperscaler and enterprise AI infrastructure investments. First-quarter fiscal 2027 revenues surged 85% year over year, while Data Center revenues jumped 92%. Management described the ongoing buildout of AI factories as the largest infrastructure expansion in human history, driven by agentic AI deployments across cloud, enterprise and sovereign AI projects. NVIDIA guided fiscal second-quarter revenues to be roughly $91 billion, despite excluding any China Data Center contribution, highlighting exceptionally strong underlying demand.

Expanding AI Platform Ecosystem: Beyond GPUs, NVIDIA is rapidly expanding its AI ecosystem through networking, CPUs, inference software and edge AI. Networking revenues nearly tripled year over year in the fiscal first quarter as the adoption of NVLink, InfiniBand and Spectrum-X accelerated. The company also unveiled its Vera Rubin AI platform, BlueField-4 infrastructure processors and Dynamo 1.0 inference software, which reportedly improves generative and agentic inference performance by up to seven times. Strategic partnerships with Meta, Hyundai, Uber and major cloud providers further strengthen NVIDIA’s position as a full-stack AI infrastructure leader rather than just a chip supplier.

Strong Cash Generation and Balance Sheet Strength: In the fiscal first quarter, NVDA generated quarterly operating cash flow of $52.8 billion and ended the quarter with $67.4 billion in cash, cash equivalents and marketable securities. NVIDIA also repurchased $14.1 billion worth of shares during the quarter. The company’s strong liquidity position supports continued investments in next-generation AI platforms such as Blackwell Ultra, Vera Rubin and advanced networking infrastructure while helping offset risks tied to export controls and supply-chain constraints.

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Reasons to Be Bullish on TSMC

Persistent 3nm and AI Chip Supply Tightness: TSMC continues to benefit from severe undersupply in advanced-node AI semiconductors. The company recently noted that the demand for 3nm capacity, advanced packaging and AI accelerators remains exceptionally strong, with demand continuing to outpace available supply through at least 2027. In TSMC’s last-reported first-quarter 2026 results, HPC revenues rose 20% sequentially and accounted for 61% of total revenues, while advanced technologies below 7nm contributed 74% of wafer revenues. TSMC also raised 2026 capital spending toward the high end of its $52-$56 billion range to accelerate N3 and N2 capacity expansion globally.

AI Packaging and Long-Term Technology Leadership: The company recently noted that advanced packaging capacity remains extremely tight as AI chips become larger and more complex. TSMC is aggressively expanding global N3 production across Taiwan, Arizona and Japan while simultaneously ramping 2nm production and preparing its A14 node for 2028. TSMC expects AI accelerator revenue CAGR to trend toward the higher end of its mid-to-high 50% long-term outlook, supported by sustained demand from hyperscalers and agentic AI applications.

Cash Position Supporting Capacity Expansion: During the first quarter of 2026, TSMC generated roughly TWD 699 billion in operating cash flow and ended the quarter with TWD 3 trillion ($106 billion) in cash and marketable securities. This financial flexibility allows TSMC to aggressively fund advanced-node fabs, CoWoS packaging expansion and 2nm production ramps without materially weakening profitability. The company also raised its 2026 capital spending outlook toward the high end of the $52-$56 billion range to meet persistent AI-chip demand. Despite rising overseas fab costs, TSMC continues targeting long-term gross margins above 56%.

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What Could Slow Down the AI Rally for NVDA and TSMC?

Despite NVIDIA’s AI dominance, risks remain. Tightening U.S. export restrictions on advanced AI chips to China could weigh on future growth, while NVIDIA’s high valuation increases the risk of a sharp downside if growth slows. Competition from Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) and custom AI chips developed by hyperscalers like Alphabet, Amazon and Microsoft could also pressure margins over time.

TSMC, meanwhile, faces geopolitical and cost-related risks despite booming AI demand. The company warned that overseas fab expansion could dilute gross margins by 2-4% over time due to higher operating costs. Rising energy and chemical prices, supply-chain uncertainties and growing competition from Samsung and Intel Foundry Services also remain key concerns for investors.

Expensive Valuation

Both NVDA and TSM shares are trading at a premium to the S&P 500 index. NVDA and TSM’s 12-month forward price-to-earnings are 24.21X and 24.11X, respectively, much higher than the index’s 19.76X over the past five years.

Both stocks have a Value Score of D, indicating a stretched valuation at this moment.

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Final Take

Despite valuation concerns and geopolitical risks, both NVIDIA and TSMC remain among the strongest long-term beneficiaries of the global AI infrastructure boom. In 2026, however, NVIDIA appears to hold the stronger near-term momentum, supported by explosive hyperscaler AI spending and faster revenue acceleration.

Meanwhile, TSMC retains leadership in advanced-node manufacturing and AI packaging technologies. Its strong balance sheets, robust demand visibility and aggressive capacity expansion plans are likely to support continued growth through 2027. With both stocks carrying a Zacks Rank #3 (Hold), existing investors may benefit more from holding positions rather than aggressively adding at current valuations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.