Why chip stocks are on an absolute tear today

• Nvidia and AMD are leading big gains across the semiconductor sector on Wednesday.
• AMD surged as much as 11% after a blockbuster earnings report.

Chip stocks are rallying across the board on Wednesday, driven by a big earnings beat from AMD and Morgan Stanley naming Nvidia as a top stock pick.

AMD spiked as much as 11% before paring gains to around 5% higher. Nvidia surged 12% at intraday highs. Other stocks getting a lift included ASML (+11%), Qualcomm (+6%), and Samsung (+4%).

AMD beat on both the top and bottom line, while also showing strong growth in its data-center business, driven by sales of GPUs, which are used to power AI technology.

In addition to riding AMD's wave higher, Nvidia was renamed Morgan Stanley's top semiconductor stock pick. The firm said a recent sell-off in the stock "presents a good entry point as we continue to hear strong data points short term and long term, with overblown competitive concerns."

The analysts said the stock has slid on concerns that will likely fade with time, like tighter customer capital spending budgets, a tough competitive landscape, export controls and supply chain concerns, among others.

"Through those concerns, the earnings environment is likely to remain strong, for NVIDIA and for the whole AI complex," the analysts said.

The semiconductor industry's strong rally is also driven by a report from Reuters that new U.S. restrictions on chip exports from foreign companies to China may not apply to U.S. allies like the Netherlands, Japan and South Korea.