Market Rally Fueled by Positive Inflation Data and Semiconductor News

Investors and consumers have grown weary of persistent inflation, making the economic outlook a priority on Wall Street and Main Street. Recently, news of easing inflation provided a welcome boost, leading to a broad market rally. Driving this enthusiasm further were reports of potential collaboration among key players in the semiconductor industry.

Chipmaker Nvidia (NASDAQ: NVDA) surged 6.7%, while computer specialist Intel (NASDAQ: INTC) increased by 4.2%. Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC, climbed 3.7%, as did semiconductor giant Broadcom (NASDAQ: AVGO), as of 12:35 p.m. ET on Wednesday.

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Positive Signs in the Inflation Report

The latest monthly report from the U.S. Bureau of Labor Statistics revealed a slight cooling in inflation, offering relief to consumers. The Consumer Price Index (CPI), a key measure of inflation, rose 2.8% in February compared to the same month last year. Additionally, prices fell by 0.2% compared to the previous month.

These figures surpassed expectations, as economists had anticipated a 2.9% year-over-year increase and a 0.3% monthly rise. The “core” inflation measures, excluding food and energy costs, climbed 3.1% year-over-year and 0.2% month-over-month, both lower than the expected 3.2% and 0.3% respectively.

While the Federal Reserve Bank targets a 2% inflation rate, Wall Street welcomed any improvement, prompting a surge in buying activity among investors.

Potential Semiconductor Collaboration

Key developments in the semiconductor sector also contributed to the market upswing.

Reports surfaced indicating that TSMC is considering a joint venture with Nvidia, Broadcom, and Advanced Micro Devices (AMD) to manage Intel’s troubled foundry. TSMC would oversee operations at the factories currently producing custom semiconductors, although it would own less than 50% of the joint venture.

These discussions reportedly began at the request of President Donald Trump, who encouraged TSMC to assist Intel as it works through its challenges. Approval from the Trump administration would be necessary, as they prefer Intel’s foundry operation remain under American control. Talks are ongoing, with TSMC seeking additional partners for the venture.

Intel has faced significant difficulties recently, with last year’s performance illustrating its struggles. The company reported a 2% revenue decline in 2024 and suffered a staggering loss of $18.8 billion, representing its lowest performance since 1986.

Reports also suggest potential obstacles to any agreements, notably the differing manufacturing processes at Intel and TSMC, along with concerns about protecting trade secrets among the participating companies.

Significance of These Developments

Intel’s challenges have been widely reported, especially following the ousting of CEO Pat Gelsinger last year after less than four years on the job. The company has faced significant market share losses and struggled with its strategy regarding the growing demand for artificial intelligence (AI). As a result, investor patience has waned.

If TSMC lends its expertise, it could prove transformative for Intel. Meanwhile, Nvidia and Broadcom have reaped substantial benefits from the AI boom but have encountered supply challenges as demand remains high. Although any gains from the proposed joint venture may take years to materialize, investor eagerness for positive news has driven up the shares of these chipmakers, even as the tech-focused Nasdaq Composite (NASDAQINDEX: ^IXIC) remains in correction mode.

Fortunately, the recent market downturn has made Broadcom, Nvidia, and TSMC more attractively priced, with valuations at 30 times, 26 times, and 20 times forward earnings, respectively.

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*Stock Advisor returns as of March 10, 2025

Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and has the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.