This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There's been an increased focus on the semiconductor industry since early last year. Investors have been enthusiastic about recent developments in the field of artificial intelligence (AI), which has sparked a flurry of activity in the space.

These powerful algorithms are highly dependent on hardware that features the most advanced processors, which has buoyed much of the sector. However, after a sharp run-up, many AI stocks have been treading water over the past several months as investors have waited for evidence the trend still has room to run.

With that as a backdrop, it's noteworthy that in trading (in the United States) on Thursday, Taiwan Semiconductor Manufacturing (NYSE: TSM) had climbed by 1.9%, ASML Holding (NASDAQ: ASML) had rallied 3.7%, and Indie Semiconductor (NASDAQ: INDI) had jumped 7.4% as of 12:46 p.m. ET.

A check of all the usual suspects -- regulatory filings, financial reports, and changes to analysts' price targets -- turned up nothing in the way of company-specific news to explain those stock price increases. This suggests that investors were reacting to the financial results from another player in the AI revolution, and that the news was good.

A flurry of activity

Micron Technology (NASDAQ: MU) released its fiscal 2024 fourth-quarter report after the closing bell Wednesday, and investors let out a collective cheer.

In the period, which ended Aug. 29, the computer memory specialist's revenue soared 93% year over year to $7.75 billion -- a company record -- while also increasing 14% sequentially. This resulted in adjusted earnings per share (EPS) of $1.18, much improved from its loss of $1.07 per share in the prior-year quarter.

Driving those results was surging demand for high-bandwidth memory of the type used in data centers and AI, which boosted Micron's profit margins.

The results sailed past Wall Street analysts' consensus expectations for revenue of $7.65 billion and adjusted EPS of $1.11.

It wasn't just the robust results that drove the stock higher, as Micron's forecast suggested the growth spurt would continue. For its fiscal 2025 first quarter, management is guiding for revenue of $8.7 billion, which would equate to growth of 84% year over year, and adjusted EPS of $1.74, which would be an increase of 83%.

Management cited strong AI data centre demand in driving sales growth for its DRAM memory and NAND flash-based storage.

The subsequent run-up in other stocks in the chip space suggests that investors view Micron's report as convincing evidence that the demand for AI and the hardware to support it is ongoing. They also clearly view these developments as positive for a broad cross-section of companies in the AI space.

A positive for chipmakers

Micron's robust results should help dispel any notion that demand for AI is waning. It's also not surprising that each of the companies in our trio has a specialty connected to the specific types of semiconductors that will benefit from the growing adoption of AI.

• Taiwan Semiconductor Manufacturing is the world's largest third-party chipmaker. Strong demand for the world's most advanced chips is fueling the foundry's pipeline and strong growth.
• ASML Holding is the only company able to build the advanced lithography systems that chipmakers must use to manufacture the highest-end semiconductors, so it's also benefiting from these secular tailwinds.
• Indie Semiconductor specialises in the types of processors used in automobiles, powering advanced driver-assistance systems, as well as various connected-car and in-cabin systems. It's also developing customized AI solutions for carmakers.

The evidence suggests the accelerating adoption of AI will continue to increase the fortunes of companies in the semiconductor space. It's worth noting, however, that all AI stocks are not created equal.

From a valuation perspective, Taiwan Semiconductor and ASML are inexpensive, selling for 22 times and 25 times forward earnings, respectively. Indie Semiconductor, on the other hand, isn't profitable, making it a much riskier investment.

That said, each of these stocks has intriguing potential, particularly given the continuing opportunities in the AI space.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Taiwan Semiconductor, ASML, and other artificial intelligence (AI) semiconductor stocks rallied on Thursday appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shares of auto leaders Tesla (NASDAQ: TSLA) and Toyota Motor (NYSE: TM), as well as auto-centered semiconductor stock Indie Semiconductor (NASDAQ: INDI) were rallying on Thursday, up 7.3%, 4.3%, and 3.5%, respectively, as of 2:14 p.m. ET.

The main driver for the rise in auto-related stocks today was the Federal Reserve's 50-basis-point cut to the federal funds rate late yesterday. Here's why that news was so important to autos, and why the sector is surging today -- especially electric vehicle (EV)-related stocks.

Autos are rate-sensitive, EVs especially

Auto-related stocks have been punished this year as high interest rates have depressed growth. A vehicle is a big-ticket item, so many autos are financed. Hence the sensitivity to interest rates. Electric vehicle stocks have been especially depressed as higher rates made EVs -- which are generally higher-priced than their internal combustion engine (ICE) competitors -- less affordable. Given that auto companies concentrated on EVs had come into this period with higher valuation multiples, it's no surprise many declined over the past two years.

EVs have also seen a downshift in their medium-term growth expectations. It was recently reported Toyota plans to cut EV production by 30% by 2026 relative to prior targets, in favor of its hybrid vehicles and other alternative lower-carbon technologies. While Toyota will still increase its absolute EV production by that time, it's clearly seeing weaker growth for pure battery-powered EVs than before.

Recent data has also been discouraging. August sales figures out of Europe showed a staggering 18.3% auto sales decline relative to last year, headlined by a 44% drop in EV sales, according to the European Automobile Manufacturers' Association (ACEA). The same report showed Tesla European sales in August down 43.2%. Of course, Europe has been the worst auto market this year, as its economy has lagged the U.S. and others. But industry group Cox Automotive has also predicted a tepid U.S. market, forecasting a mere 1.3% growth over 2023.

Therefore, yesterday's announcement by Federal Reserve Chair Jay Powell of a 50-basis-point rate cut, larger than the 25-basis-point cut many had been expecting, caused a big bounce for these depressed auto-related stocks and cyclical stocks in general. As long as the economy doesn't fall into recession, the big cut yesterday and forecasts for further cuts signal the recent period of high inflation may be coming to an end. Given that the market is forward-looking, auto-related stocks jumped on prospects for relieved consumers and higher auto sales.

Additionally, rate cuts may especially help Indie Semiconductor, which is currently unprofitable. Lower interest rates tend to boost valuations of low-profit or no-profit growth stocks, given that the bulk of their theoretical profits are well out into the future. But the further out profits and cash flows are, the more the present-day value of those profits are discounted by higher interest rates.

While the majority of today's move in Tesla and other auto stocks was likely due to the larger rate cut, Tesla also received some mildly positive company-specific news. Rival General Motors announced that it would allow its EV customers to charge their vehicles at Tesla superchargers, by developing and distributing adapters for its EVs. Although that change would perhaps open up more competition for would-be Tesla purchases, Tesla also stands to make money on increased charging revenue. Of course, charging revenue usually pales in comparison to selling more vehicles.

The outlook

The auto industry is widely known to be very cyclical, and given the high price tags of autos generally, it's especially rate-sensitive. And for EV or auto-related tech stocks with lower profits today but high hopes for the future, they are triply sensitive to interest rates.

This is why yesterday's bigger rate cut was such a big deal for auto stocks and especially those concentrated in EVs or auto tech. For holders of these stocks, this high sensitivity to interest rates is something to consider as you hold these stocks.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why the Tesla share price just rallied appeared first on The Motley Fool Australia.