NVIDIA’s AI Revenue Threatened by Trump Administration Sanctions on Thailand and Malaysia, Investment Bank Warns

This article does not constitute investment advice, and the author does not hold positions in any of the stocks mentioned.

In a recent analyst note, UBS highlights potential ramifications for NVIDIA Corporation amidst the Trump administration’s proposed restrictions on Malaysia and Thailand. While American firms focusing on data center construction in these countries could gain from the situation, it presents a significant risk for NVIDIA, which derives 12% of its revenue from Malaysia. The surge in Malaysian orders for local data centers has emerged as a critical growth area for NVIDIA, especially in light of ongoing U. S.sanctions on China. NVIDIA CEO Jensen Huang has been advocating for the concept of sovereign AI, noticing a growing interest in national computing capacities that align with advancing AI technology.

UBS Cautions on Chip Sanctions’ Impact on Tech Stocks

Following a notable increase in NVIDIA’s share price in June, which propelled it to become the most valuable company globally, concerns arise regarding the sustainability of this growth. The company’s shares surged by 45% from May to June, spurred by strong earnings and a lesser-than-anticipated impact from U. S.GPU sanctions on China, fostering optimism about AI and GPU demand among investors and analysts.

However, UBS warns that NVIDIA’s recent gains might be vulnerable. The latest sanctions imposed by the U. S.government limit NVIDIA’s ability to offer certain chipsets to Chinese firms, prompting Jensen Huang to embark on a worldwide tour aimed at bolstering interest in AI for non-Chinese applications. This initiative has injected fresh enthusiasm into NVIDIA’s stock, leading investors to reassess the global demand landscape for its products.

UBS’s recent analysis indicates that NVIDIA’s dependency on Malaysian revenue could expose it to additional financial strains. Following a remarkable June, NVIDIA’s stock has seen slight declines today, which coincides with a 2% drop in the stock price of its competitor AMD.

The investment bank posits that these new restrictions may disrupt the ongoing surge in technology stocks, as the rally appears more driven by “price-to-earnings multiple expansion”rather than favorable earnings forecasts. Any fluctuations in order volumes could threaten technology firms’ earnings expectations, potentially resulting in decreased share values.

On a more positive note for American tech firms, UBS suggests that certain companies could benefit from the evolving rules. It asserts that while U. S.sanctions restrict local Malaysian and Thai firms from acquiring GPUs, American companies such as Microsoft and Oracle may remain unaffected by these limitations. Furthermore, UBS argues that “Malaysian companies primarily serving U. S.-backed projects should remain relatively insulated”from the sanctions’ impact. The new measures primarily target preventing GP transships to China and the involvement of Chinese entities in GPU-related projects.

Source & Images