SerpApi.Org
Key Points
TSMC is raising its price for contract chip manufacturing.
If TSMC feels it can raise prices safely, Micron may be able to, too.
Bank of America posits cheap Chinese AI models may require even more memory than American AI.
Micron (NASDAQ: MU) stock shot higher for a second straight day Tuesday, soaring 13.4% through 1 p.m. ET.
You can thank Taiwan Semiconductor Manufacturing Company (NYSE: TSM) for that -- and Bank of America, too.
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TSMC raises prices
Nikkei Asia reports TSMC will raise prices for contract chip manufacturing by "up to 10%" in 2027 (and some prices might spike 20%). Nikkei says TSMC is doing this to offset "rising costs for materials, manufacturing equipment and construction of new overseas chip plants."
But that's just one reason -- the other reason is that TSMC can raise prices.
Just because input prices rise doesn't mean a manufacturer can raise its product prices without losing customers. If customers balk, the manufacturer may need to absorb the higher costs of the more expensive inputs, hurting its profit margin. In light of strong demand for artificial intelligence chips, though, it seems TSMC is comfortable raising prices -- and confident its customers will not flee.
Implications for Micron
By implication -- because AI chips require lots of memory chips when performing inference functions -- this means Micron can raise its prices, too. So in essence, TSMC has reinforced the bull thesis for Micron stock today.
Separately, Bank of America analyst Vivek Arya addressed concerns that cheap AI models from China might threaten Micron's business... a theory he says is nonsense. Just because Chinese models charge lower prices than American models from Anthropic and OpenAI doesn't mean they're doing so profitably, or that their input costs are lower.
To the contrary, Arya thinks that by using fewer and lower-quality GPUs, Chinese AI companies may actually need to buy more memory chips to answer questions -- not fewer. And if he's right about that, he's just given investors yet another reason to buy Micron stock.
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Bank of America is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
