AI Frenzy Seen Powering TSMC’s Rally From Overbought Levels

(Bloomberg) -- The blistering gains of Taiwan Semiconductor Manufacturing Co. have sent the chipmaker to the most overbought level in three years, but its critical role in artificial intelligence suggests investors may find it too early to abandon the rally.

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TSMC, whose chips are used by some of the world’s most advanced AI processors, gained further traction this week by rising more than 10% to a fresh record following the advance in its client Nvidia Corp. The rally has brought its 14-day relative strength index to over 82, making it one of the most overbought stocks in Asia based on this technical indicator.

“Consumers and business communities’ confidence in GenAI’s added value justifies any potential price increase,” said Bloomberg Intelligence analyst Charles Shum. The next valuation re-rating catalyst for the company is an exponential growth of generative AI used in devices like smartphones and computers, he added.

The world’s top chip foundry jumped as much as 4.6% to NT$769 in Taipei on Thursday. Other chipmakers in Taiwan also edged higher, as MediaTek Inc. closed 3.4% up and ASE Technology Holding Co. climbed 9.7% to a fresh record.

JPMorgan Chase & Co. hiked its target price for TSMC by 10% Wednesday, calling the stock an “enabler for almost all AI processing at the data center and the edge.” AI-related revenues should surge by one fourth by 2027 and the company should maintain its lead in developing some of the advanced chips, analysts including Gokul Hariharan wrote in a note.

TSMC has rallied almost 30% this year, riding on the market obsession over generative AI powered by Nvidia’s earnings. It is scheduled to report its monthly sales on Friday.

(Adds other chipmakers’ share performance in the fourth paragraph.)

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