US Semiconductor Sanctions Spell Trouble for Nvidia, But May Benefit Big Tech

Nvidia’s NVDA U.S. Big Tech customers, including Microsoft Corp MSFT, Amazon.com Inc AMZN Amazon Web Services, Alphabet Inc GOOGL GOOG  Google, and Meta Platforms Inc META postponed Blackwell GB200 rack orders due to overheating problems, Reuters cites the Information.

A data center rack accommodates chips and cables. Reportedly, Nvidia’s hyperscalar customers had placed orders worth $10 billion or more.

The first rack shipments with Blackwell chips reportedly exhibited glitches in the chips’ connections, prompting customers to postpone orders for an updated version or purchase the company’s older AI chips.

Also Read: Nvidia, Broadcom Among Goldman Highlights For AI Opportunities

The Biden administration’s potential AI chip and technology exports posed a double whammy for Nvidia.

The ten leading global semiconductor companies slashed their capital expenditure plans to tackle overcapacity and weakening demand in electric vehicles and smartphones, with artificial intelligence offering minimal respite, Nikkei Asia reports.

Capex plans for each company’s fiscal 2024 dropped to $123.3 billion (down by 2%), implying a decline of $9.5 billion from their May estimates, which predicted a 6% growth.

DA Davidson’s Gil Luria told Reuters he expects the U.S. embargo to significantly affect (Nvidia’s) market as up to 50% of its chips end up in countries that will be off-limits once the rules kick in. Dan Coatsworth of AJ Bell also voiced similar concerns about the sanctions to Reuters.

Reuters cites the company’s regulatory disclosures as indicating that Nvidia generates ~56% of its revenue from customers outside the U.S., with China making up about 17% of sales.

Nvidia Vice President of Government Affairs Ned Finkle and the Semiconductor Industry Association had expressed dissatisfaction with the U.S. semiconductor sanctions that would hinder Nvidia’s growth potential.

Interestingly, the U.S. sanctions will benefit the U.S. Big Tech giants as they can grow their market share by seeking approval to establish data centers in countries affected by the embargo.

Investors will closely watch for President-elect Donald Trump’s take on the potential semiconductor embargo.

Investors can gain exposure to stocks of companies that manufacture semiconductors through ProShares Ultra Semiconductors USD and Invesco PHLX Semiconductor ETF SOXQ.

Price Action: NVDA stock traded higher by 1.53% to $135.27 premarket at the last check on Tuesday.

Also Read:

• Taiwan Semiconductor Begins 4nm Chip Production in Arizona, Eyes $11.4 Billion Q4 Profit

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