Nvidia ( NVDA ) and other chip stocks rebounded from Tuesday’s slump after better-than-expected earnings from Advanced Micro Devices ( AMD ) gave what could be a strong demand signal for the industry.

A report that expected U.S. restrictions on chip-equipment exports could be l ess stringent than previously thought also lifted some companies’ shares.

The iShares Semiconductor ETF ( SOXX ) was up nearly 5% in early trading Wednesday, recovering from Tuesday’s losses, though it’s still off highs seen earlier in the month.

AMD, Microsoft Earnings Signal Strong AI Chip Demand

The comeback for chip stocks comes after AMD reported second-quarter sales that exceeded analysts’ expectations. Its data center revenue more than doubled year-over-year to a record high as demand for AI chips surged.

Microsoft ( MSFT ), a buyer of AMD’s AI chips, said in its earnings call after the bell Tuesday that it plans to ramp up investments in AI to meet demand , with nearly all of its $19 billion in capital expenditures allocated to cloud or AI investments.

Nvidia was among the stocks leading gains on the S&P 500 Wednesday after Morgan Stanley analysts reported “consistent upside to AI [ capital expenditures ].”

“The selloff presents a good entry point,” Morgan Stanley wrote.

An update on chip designer Arm’s ( ARM ) financial results after the bell Wednesday could reinforce the trend. Analysts expect Arm to report double-digit quarterly revenue growth after posting record-high royalty revenue a quarter earlier.

US Reportedly Considering Less Expansive Chip Trade Restrictions Than Anticipated

Wednesday’s surge in semiconductor stocks also follows a report suggesting the scope of U.S. trade restrictions on semiconductor equipment under consideration could be narrower than previously anticipated .

While the U.S. government is still expected to expand limitations on exports of semiconductor equipment, countries including Japan, the Netherlands and South Korea may be exempted from rules affecting companies based outside the U.S., Reuters reported Wednesday.

Shares of the Netherlands’ ASML ( ASML ), which was expected to be affected by the restrictions, surged following the news.

Jefferies analyst said Wednesday about the development that despite lingering uncertainty, “we believe short-term weakness would be a buying opportunity for the longer term.”