The Long-term CHIPS Act Tailwind for NVIDIA Faces a Hurricane of Short-term Headwinds From the China Sales Ban, Ethereum’s Revamp, and PC Demand Slowdown


This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

With NVIDIA shares down over 50 percent so far this year, one could be forgiven for thinking that the seemingly unending lovefest of retail investors with the stock would have ended long ago. The reality, however, is the polar opposite of this proposition, with NVIDIA shares continuing to feature prominently in retail portfolios and online discussions.


Regardless of the investing community’s persistent affinity toward NVIDIA, it is a matter of fact, rather than an opinion, that the stock faces a myriad of challenges ahead. Let’s delve deeper.

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The biggest tailwind for NVIDIA shares is the oncoming flood of federal funding within the ambit of the CHIPS Act. The legislation has unlocked $280 billion in incentives and grants, including $52 billion in federal investments and tax breaks for the domestic semiconductor research, design, and manufacturing provisions as laid out in the US Innovation and Competition Act (USICA). While initially, the legislation was viewed as a net negative for NVIDIA, given that the company does not operate its own fabs, the details that have come to the fore recently do offer a sizable boost.

To wit, the US Department of Commerce recently outlined four primary goals of the CHIPS Act:

  • Establish and expand domestic production of leading-edge semiconductors in the US, of which the US currently makes 0% of the world’s supply
  • Build a sufficient and stable supply of mature node semiconductors
  • Invest in R&D to ensure the next-generation semiconductor technology is developed and produced in the US.
  • Create tens of thousands of good-paying manufacturing jobs and more than a hundred thousand construction jobs

For NVIDIA specifically, the third goal – the one that pertains to R&D – is of prime importance. While a breakdown of this federal funding pool will be provided in February 2023, NVIDIA will likely be able to secure material amounts for its research and development activities.

This brings us to the crux of the matter. The CHIPS Act tailwind for NVIDIA is currently being neutralized by a host of headwinds emanating from various quarters.

NVIDIA Faces a Host of Challenges Ahead

The US government has now imposed a license requirement for the export of NVIDIA’s data-center-focused A100 and H11 GPUs to Russia and China. The company believes this measure would result in a $400 million hit next quarter alone. But wait, there is more. According to Reuters, the US is working on a comprehensive package against China in coordination with the EU. This package is intended to deter China from invading Taiwan and gaining access to TSMC’s fab units. Consequently, the geopolitical headwinds for the entire semiconductor sector, including NVIDIA, have now increased dramatically.

Moreover, Ethereum’s recent transition to a Proof-of-Stake (PoS) transaction authentication framework has removed a sizable source of demand for NVIDIA’s GPU. Bear in mind that an overwhelming proportion of Bitcoin’s mining is now done via Application-Specific Integrated Circuits (ASICs). This had left Ethereum as the only significant source of GPU-driven mining activities. In line with Ethereum’s transition, the cryptocurrency’s hash rate has now collapsed to just 213.62 TH/s, constituting a decline of over 76 percent.

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This is already having a material impact on NVIDIA GPU prices, with the NVIDIA GeForce RTX 3090 Ti now selling for below $1,000 for the first time ever. Bear in mind that Ethereum’s merge event does not constitute a termination of all Ethereum-related mining activities. On the contrary, Ethereum Classic continues to attract miner interest. Moreover, as we had explained in a dedicated post earlier this week, there is a growing expectation of a hard fork – expected to be called EthereumPoW (ETHW). Nonetheless, given the collapse in Ethereum’s hash rate, it remains unlikely that any upcoming hard fork would be able to restore the previous level of GPU-driven mining demand. This, of course, adds a significant headwind for NVIDIA.

Finally, NVIDIA is also suffering from a broad-based slowdown in PC demand. For instance, Micron has projected that PC demand would decline by around 10 percent in FY 2022. Coupled with expectations of a recession in the US in 2023, with a similar economic contraction now virtually locked-in for the EU, and you end up in an environment of persistent decline in sales. Some analysts believe that this slowdown is healthy – that it paves the way for the market to return the excess demand generated during the COVID crisis, thereby helping to balance the market. But this is cold consolation for NVIDIA shareholders.

All is not doom and gloom for the chip industry, including NVIDIA. The US CPI report released earlier this week resulted in the worst day for the market since June 2020, as core inflation for the month of August came in hotter than expected, thereby dampening expectations of peak inflation. Crucially, all stocks in the Nasdaq 100 index ended the day in the red. This has been an attractive buying opportunity in historical terms, as detailed in the tweet above.

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