1 Big Reason Nvidia Stock Could Be About to Make a Big Move

Though Nvidia (NASDAQ: NVDA) has been a top performer in the stock market in the past couple of years, shares of the semiconductor giant have lost momentum since the release of its fiscal 2025 third-quarter results in November last year.

Investors were not impressed by Nvidia's quarterly performance and outlook even though it handily beat Wall Street's expectations thanks to the booming demand for its artificial intelligence (AI) chips. A relative slowdown in the company's stunning pace of growth coupled with margin concerns have weighed on the stock. As a result, shares dipped nearly 9% since the company released its latest set of results on Nov. 20, 2024.

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However, a recent piece of news from one of Nvidia's key partners could help this chipmaker regain its momentum and give the stock a nice shot in the arm.

Nvidia's foundry partner delivered a big jump in sales last month

Nvidia is a fabless chipmaker that only designs its chips. It doesn't have any manufacturing facilities of its own, so it outsources the fabrication of its chip designs to Taiwan Semiconductor Manufacturing (NYSE: TSM). Popularly known as TSMC, this Taiwan-based company is the largest semiconductor foundry in the world with a market share of 64%, according to Counterpoint Research.

Nvidia was reportedly the second-largest customer of TSMC in 2023, accounting for 11% of the manufacturer's top line. That share is likely to have moved higher as TSMC has been rapidly enhancing its capacity to help Nvidia fulfill more orders.

So, the news that TSMC's monthly sales increased an impressive 58% year over year in December 2024 bodes well for Nvidia since it represented a big jump versus the year-over-year increase of 34% seen in November 2024.

TSMC's solid end to the year lends credence to management's comments on the November 2024 earnings conference call that Nvidia is on track to generate significantly higher revenue from sales of its newly launched Blackwell graphics processing units (GPUs). The company has been working to increase the output of its Blackwell GPUs with TSMC's help, which is why Nvidia warned that its margins would take a hit in the near term as it aggressively ramps up output. According to chief financial officer Colette Kress:

Our current focus is on ramping to strong demand, increasing system availability, and providing the optimal mix of configurations to our customer. As Blackwell ramps, we expect gross margins to moderate to the low 70s. When fully ramp, we expect Blackwell margins to be in the mid-70s.

TSMC's revenue in December 2023 was down 8% year over year, so the sharp increase in December 2024 revenue makes it clear that it is indeed manufacturing more chips for Nvidia this time around. That's not surprising considering that TSMC doubled its advanced chip-packaging capacity in 2024 to help meet AI-fueled demand, a trend that's expected to continue in 2025.

This is precisely the reason Nvidia is likely to deliver stronger-than-expected growth in the coming quarters.

Nvidia should be able to deliver more Blackwell orders

In October 2024, there were reports suggesting that Nvidia sold its entire capacity of Blackwell processors for the next 12 months due to unprecedented demand. CEO Jensen Huang added to the Blackwell craze by pointing out that the chip is witnessing "insane" demand. That's why it makes sense for Nvidia to go all out to manufacture as many Blackwell processors as possible so that it can reduce waiting times for its chips.

TSMC is helping the chipmaker in this regard by significantly increasing its capacity. That's the reason there is a strong likelihood of Nvidia being able to fulfill more orders than expected, leading to better-than-expected revenue growth in the coming quarters.

Analysts have increased their revenue estimates for the next fiscal year (which will start from the end of this month), as seen in the following chart, and TSMC's revenue growth last month suggests that those estimates may move higher.

NVDA revenue estimates for next fiscal year, data by YCharts.

At the same time, some analysts are forecasting Nvidia to generate $200 billion in revenue from sales of data center chips in fiscal 2026. That's higher than the overall revenue that the company is expected to deliver in the upcoming fiscal year.

The aggressive ramp-up of Blackwell chips, as evidenced by TSMC's December quarterly sales, could very well help Nvidia beat Wall Street's expectations, and that could pave the way for more upside in this AI stock.

And given that Nvidia stock is trading at 31 times forward earnings, which is slightly lower than the tech-laden Nasdaq-100 index's earnings multiple of 32.5, investors can consider buying it before it embarks on its next bull run.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.