This content is not intended as investment advice. The author does not hold any positions in the stocks discussed.
Market Response to New Challenges
Today’s trading session began on a relatively calm note, but that tranquility was short-lived as several significant developments unfolded. Initially, news broke that China’s National Development and Reform Commission (NDRC) has tightened regulations on energy efficiency for domestic data centers. This change effectively excludes NVIDIA’s H20 GPUs, jeopardizing approximately $17 billion—representing 13% of the company’s total revenue—that NVIDIA generates from the Chinese market.
Microsoft’s Data Center Turmoil
Furthermore, TD Cowen’s analysis highlighted increasing cancellations of Microsoft’s data center leases, triggering concerns over the future viability of capital expenditures tied to artificial intelligence. Analyst Michael Elias conducted thorough channel checks, revealing that these cancellations are “more pervasive”than previously anticipated, as noted in his findings:
“Our channel checks at NVIDIA GTC and DCD Connect indicate aggregate data center demand has increased Y/Y despite more pervasive lease cancellations/deferrals by MSFT than initially thought, which created an opportunity for both GOOG and META to backfill capacity.”
Implications for the Market
Elias further elaborates, indicating a slowdown in hardware orders stemming from hyperscale redesigns aimed at increasing rack density. He considers this trend as potentially detrimental for VRT orders in the first half of 2025:
“Hyperscale redesigns for higher densities are driving slower DC equipment purchasing, which we view negatively for 1H25 VRT orders.”
In clearer terms, Elias estimates that Microsoft has deferred or canceled over 2GW of data center capacity across the US and the EU in the last six months. While he speculates that the company’s decision not to support OpenAI’s training workloads may have contributed to this pullback, he also notes a broader trend indicating an oversupply of data center resources compared to demand forecasts. Notably, companies like Google and Meta are quickly moving to utilize some of the capacity that Microsoft has left vacant.
Economic Impact of Auto Tariffs
As the market was processing these developments, President Trump made headlines by announcing a 25% tariff on all vehicles not manufactured within the United States. This proclamation is likely to exacerbate threats to the Canadian auto industry, potentially prompting retaliatory measures.
Trump (aka Tariff man) found further ways to push the economy into recession today, signing a proclamation to implement a 25% tariff on auto imports, expanding a trade war designed to bring more manufacturing jobs to the US and setting the stage for an even broader push on levies…
— Gary Black (@garyblack00) March 27, 2025
Analysts are increasingly concerned that these tariffs could stifle trade flows, with the Atlanta Fed already forecasting negative GDP growth for the current quarter. Given these dynamics, a recession appears to be on the horizon for the US economy.
Market Reactions
In reaction to the day’s news, both the S&P 500 and the Nasdaq-100 indices closed down by over 1%.Notable casualties included Tesla and NVIDIA, both of which saw their stocks drop by more than 5%.
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