NVIDIA's Bullish Run Ahead: TSMC's AI Surge and Trade Truce Signal Growth

The semiconductor sector is undergoing a seismic shift, driven by the insatiable demand for artificial intelligence (AI) chips. At the epicenter of this revolution is Taiwan Semiconductor Manufacturing Company (TSMC), whose Q1 2025 results reveal a staggering 41.6% year-over-year revenue surge, with AI-related products now accounting for 59% of total revenue. For NVIDIA (NVDA), the world's leading AI chipmaker, this is a clarion call: the supply chain dynamics are aligning to fuel its growth trajectory. While geopolitical risks persist, the U.S.-China trade truce framework offers a pathway to sustained momentum. Let's dissect the opportunities and risks for investors.

TSMC's AI Boom: The Foundation of NVIDIA's Dominance

TSMC's Q1 results underscore its position as the linchpin of the AI revolution. Its advanced nodes—3nm, 5nm, and 7nm—now account for 73% of wafer sales, with 3nm alone contributing 22% of revenue. These cutting-edge processes are essential for NVIDIA's GPUs, particularly its Blackwell chips, which already generate 22% of TSMC's AI-related revenue.

The partnership isn't just transactional. TSMC's CoWoS packaging technology, which integrates heterogeneous chips for AI workloads, is critical for NVIDIA's next-gen GPUs like the H100 and future Blackwell variants. To meet soaring demand, TSMC plans to double CoWoS capacity to 660,000 wafers annually by end-2025, addressing current bottlenecks. This expansion isn't just a win for TSMC—it's a direct tailwind for NVIDIA, which relies on these advanced nodes to outpace competitors like AMD.

The U.S.-China Trade Truce: A Fragile but Positive Shift

The June 2025 U.S.-China trade truce brings mixed signals but leans bullish for NVIDIA in the near term. Key takeaways:

1. Tariff Reductions: U.S. tariffs on Chinese imports were slashed from 145% to 10%, easing supply chain costs for TSMC and other manufacturers. This reduces operational friction for NVIDIA's partners, such as Taiwan-based foundries.
2. Export Controls Remain: The U.S. maintained restrictions on advanced AI chips to China, including NVIDIA's H20 chip. While disappointing for NVIDIA, this underscores the U.S. government's prioritization of AI leadership. The H20's exclusion may even drive demand for alternative, compliant NVIDIA products.

Market reactions were swift: semiconductor stocks like NVDA and AMD rose over 2% on the truce news. However, risks linger. A July 9, 2025 deadline looms, threatening new tariffs if China fails to comply with rare earth export rules. Investors must remain cautious here, but the truce's core provisions—reduced tariffs and ongoing dialogue—provide a stable foundation for growth.

Risks on the Horizon: Geopolitics and Inventory Adjustments

• TSMC's Capacity Constraints: While CoWoS expansion is underway, current bottlenecks could delay shipments, temporarily capping NVIDIA's output.
• Inventory Corrections: Pre-truce stockpiling by buyers may lead to post-Q1 inventory adjustments, potentially dampening demand in Q2.
• Geopolitical Volatility: The July deadline and broader U.S.-China tensions remain a wildcard. A breakdown could reignite trade wars, disrupting supply chains.

Investment Thesis: NVIDIA's Bull Case

Despite the risks, NVIDIA's fundamentals are too strong to ignore. The AI chip market is projected to grow at a 45% CAGR through 2029, with NVIDIA's Blackwell chips and HPC partnerships (e.g., Microsoft, Amazon) solidifying its leadership. TSMC's capacity expansion and CoWoS investments will ensure NVIDIA can scale production to meet demand. Even the H20 chip restrictions are a minor speedbump compared to the broader AI opportunity.

Action Items for Investors:1. Overweight NVDA: The stock's valuation remains reasonable given its growth prospects. A pullback post-Q2 inventory adjustments could present a buying opportunity. Historically, buying NVDA the day before TSMC's quarterly earnings and holding for 20 trading days since 2020 delivered an average return of 13.16%, though investors should account for volatility (31%) and potential drawdowns up to -38.48%.2. Monitor the July 9 Deadline: If the U.S. and China meet obligations, expect a rally in semiconductor stocks. If not, hedge with put options on tech indices.3. Focus on Long-Term Trends: AI adoption in industries like healthcare, autonomous vehicles, and enterprise computing will sustain demand for years.

Conclusion

NVIDIA sits at the nexus of two unstoppable forces: TSMC's AI-driven manufacturing prowess and the U.S.-China truce's reduced trade barriers. While geopolitical risks and supply chain hiccups are real, they are manageable in the context of the AI revolution's scale. For investors with a long-term horizon, NVIDIA remains a core holding in the semiconductor sector. The next 12–18 months could see NVDA's stock outperform as the world's AI infrastructure builds out—and TSMC's factories keep churning.

Stay positioned for growth, but keep an eye on the July deadline.