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In a fresh analyst note released today, investment bank UBS points out that the Trump administration's purported curbs against Malaysia and Thailand could benefit American firms building data centers in the countries but put AI chip giant NVIDIA Corporation at risk. UBS shares that 12% of NVIDIA's revenue is generated from Malaysia as domestic Malaysian companies have increased their orders to build local data centers. Amidst US sanctions on China, NVIDIA CEO Jensen Huang has pitched the idea of sovereign AI to investors and governments, with interest in national AI computing capacity growing alongside interest in the technology.
UBS Warns New Chip Sanctions Could Impact Surging Tech Stocks
NVIDIA's shares picked up steam in June and allowed the firm to retake the crown of being the world's most valuable company. The shares gained 45% between May and June on the back of strong earnings, which reflected a weaker-than-expected impact from US GPU sanctions on China and an overall bullishness amongst investors and analysts about the future of AI computing and GPU demand.
However, these gains could be at risk, warns investment bank UBS. After the US government's latest round of sanctions on NVIDIA prevented the firm from selling additional China-specific chips to Chinese entities, CEO Jensen Huang undertook a global tour to stimulate interest in AI demand for sovereign applications. Huang's tour injected fresh optimism in NVIDIA stock as investors expanded their estimates of the global demand for the firm's products.
In a fresh analyst note released today, UBS points out that 12% of NVIDIA's revenue comes from Malaysia, which could put the firm at risk of further hits to the income statements. After strong gains in June, NVIDIA's shares are slightly down today, while its smaller peer and rival AMD's stock is down by 2%.
The investment bank notes that the new sanctions could harm the recent rally in technology stocks as the gains are primarily due to "price-to-earnings multiple expansion than by positive earnings revisions." Any volatility in orders that could lead technology companies to miss their earnings estimates might end up harming their shares.
However, while NVIDIA might be at risk, other American technology firms could benefit from the new rules, believes UBS. It believes that while the US sanctions would prevent domestic Malaysian and Thai companies from buying GPUs, their American counterparts, such as Microsoft and Oracle, might not face similar restrictions.
It also believes that "Malaysian companies primarily serving US-backed projects should remain relatively insulated" from the sanctions, which will primarily seek to prevent any GPU transshipment to China or any GPU use from Chinese entities or associated projects.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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