(Reuters) - U.S. chip stocks rose before the bell on Thursday after industry bellwether TSMC's strong sales forecast fanned investor optimism about demand for processors used to power artificial intelligence applications.

Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker, raised its expectation for annual revenue growth and said sales from AI chips would account for mid-teen percentage of its full-year revenue.

The forecast from the leading producer of advanced AI chips reinforced investor confidence in the outlook for chipmakers whose market values have skyrocketed over the past two years due to a surge in chip spending by Big Tech.

U.S.-listed TSMC shares rose 7%, with the company's market capitalization set to cross $1 trillion if premarket gains hold.

TSMC customer and AI chip frontrunner Nvidia and smaller rival AMD both gained more than 2%. Networking chipmaker Broadcom, smartphone semiconductor maker Qualcomm and memory chip provider Micron rose between 1.5% and 3%.

Struggling chipmaker Intel's shares were also edging higher. Intel has been expanding its chip fabrication facilities in an attempt to challenge TSMC in advanced contract manufacturing - an undertaking analysts expect will take years.

TSMC's outlook also offered some respite to investors after deep forecast cuts from chipmaking equipment giant ASML sparked fears of a slower-than-expected recovery in demand for semiconductors not used in AI.

TSMC's U.S.-listed shares are up more than 80% so far this year, while Nvidia has risen over two folds, as investors pour billions of dollars into semiconductor stocks amid Wall Street's booming picks-and-shovels trade.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Maju Samuel)