AI: No Nvidia (or Apple) without China

...we are better off with China than without

The Bigger Picture, Sunday February 25, 2024

What a time of juxtapositions for technology in the US. Evokes Dickens indeed.

While Nvidi Reigns in the US markets, and gained the largest amount in a single day on stronger than expected AI driven business for its chips, the NYT also highlighted how US investors are systematically exiting China as future investors. Nvidia and Apple, two of the leading ‘Magnificent 7’ companies in particular, owe their long-term success over decades to their presence and relationships in both China and Taiwan.

And yet it’s the current crop of geopolitical issues between the US and China that is threatening the possibilities and execution paths for future US companies. Both new and old. That is the Bigger Picture I’d like to focus on this Sunday. Let me unpack.

First, the electric market celebration around Nvidia, as the leading company in the AI Tech Wave. They for now have a ‘Microsoft of the PC era’ leg up in AI infrastructure for the foreseeable future. Following its robust AI demand driven results this most recent quarter, Barron’s noted:

“After clearing an already-high bar for its earnings on Wednesday, Nvidia’s stock gained $276.65 billion in market value on Thursday, the largest one-day gain for any company on record.”

“That’s larger than Meta’s record one-day market value gain of $204.49 billion, set on Feb. 2, according to Dow Jones Market Data.”

“Nvidia blew past expectations for its fourth-quarter earnings and revenue, and gave current-quarter guidance that well exceeded expectations. Nvidia shares hit an intraday high of $785.75.”

“With a current market cap of $1.963 trillion, Nvidia also easily surpassed Amazon.com and Google-parent Alphabet to become the third-largest U.S. company by market value, after Microsoft and Apple.”

A victory indeed for Taiwan-born US citizen Nvidia founder-CEO Jensen Huang, who drove the company to ‘overnight’ AI success after thirty years in the tech trenches.

The aforementioned juxtaposition above was the NYT’s piece “Silicon Valley Venture Capitalists Are Breaking Up With China”:

“Under intensifying scrutiny from U.S. lawmakers, top firms have pulled back from investing in Chinese start-ups.”

“U.S. venture capital firms that once saw China as the next frontier for innovation and investment returns are backing away, with some separating their Chinese operations from their American business and others declining to make new investments there.”

The whole piece is worth reading, if only to understand the nuance of the politics of both sides in this complex major headwind to technology driven global growth. It underlines the ongoing ‘Threading the Needle’ geopolitical tussles I’ve highlighted for a long time in these pages, as the premier headwind facing the AI Tech Wave in 2024 and beyond, vs prior major technology waves like the PC, Internet and others.

Apple, the other multi-trillion dollar US tech success story, and Nvidia, along with almost the entire global tech industry rely heavily on Taiwan’s Taiwan Semiconductor (TSMC) to get its chips actually made. Not to mention the trillions in chip infrastructure planned by so many tech luminaries.

While today’s public and private investors enjoy the fruits of US China interdependence and its leveraging by the leading global technology companies, we’re setting the stage for less or no seed-corn for future growth to come.

The precise nature of the potential stunting of future growth is yet to be determined. There are too many unknowns to analyze the complex math involved. And US companies, especially the most successful ones like Nvidia, Apple and many others, will have to figure out how to navigate these political twists and turns ahead.

Indeed Nvidia’s Jensen Huang has been warning of the potential ‘immense harm’ to the US tech industry ahead.

But as the US private venture investment complex steers away from China for the foreseeable future, we have to ponder where the next largest one day market cap gain in the markets will come from. That is this Sunday’s Bigger Picture. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)