Nvidia investors on Monday were hit with a barrage of headlines about the company’s geopolitical challenges — some good, others not so good. The uncertainty sank the Club stock again as a broader wave of concern also slammed the overall market. Nvidia is conducting tests on Intel’s new manufacturing process called 18A, Reuters reported Monday. Club holding Broadcom is also said to be kicking the tires at Intel. All three companies are headquartered in Silicon Valley. The report underscores Nvidia’s stated desire to work with more manufacturing partners, which could deliver competition benefits and diversify its supply chain as geopolitical concerns mount among investors. Intel , an iconic yet struggling American tech pioneer, could use a win, too. Intel is both a chip designer, like Nvidia, and a chip manufacturer, like Taiwan Semiconductor Manufacturing . Intel has problems on both fronts. It has fallen well behind industry leader TSMC in producing cutting-edge chips. On the design side, it has also failed to ride the artificial intelligence chip wave, which has turbocharged Nvidia sales, profits, and market value. Intel is counting on its current production process to narrow the manufacturing gap, with the hopes of following it up with a next-generation technology that would gain further ground on TSMC, which is the go-to manufacturer of Nvidia’s AI chips. As Intel leans into a third-party manufacturing business — referred to as “foundry” services — after historically producing only its in-house designed products, potentially securing a commitment from AI leader Nvidia would be significant. The Reuters report made clear that it’s early in the test process, and there are no guarantees the results will be up to Nvidia’s liking. In September, Reuters reported that Broadcom was disappointed with Intel tests . Unlike Intel, the likes of Broadcom, Nvidia and Advanced Micro Devices are what’s known as “fabless” chip companies: They design the processors and then rely on third-party manufacturing companies to “fabricate” them in specialized factories. Nvidia has expressed support for widening its base of manufacturing partners. At a UBS conference in November 2023, CFO Colette Kress was asked directly if Nvidia would ever consider using Intel’s foundry services. “TSMC has been a great one. As you know, we also use Samsung today. Would we love a third one? Sure. We would love a third one,” Kress said at the time. “Keep in mind there are other ones that may come to the U.S. TSMC in the U.S. may be an option for us as well. Not necessarily different but, again, in terms of a different region. Nothing that stops us from potentially adding another foundry.” The upshot of working Nvidia working with Intel would be two-fold. For starters, TSMC’s dominant position in making the most advanced chips — known in the industry as “leading edge” — has raised competition concerns. Indeed, an analyst on TSMC’s earnings call in October asked executives how they prepared for antitrust risk given the Taiwan-based company’s “near monopoly” status. TSMC chief executive C.C. Wei responded by saying its pricing strategy is designed to ensure its customers can also be successful, and it’s true that TSMC has built its lead by being a well-run company that delivers mutually beneficial innovation. Still, it would benefit chip designers like Nvidia to have a viable leading-edge alternative to TSMC to enhance competition in the marketplace. For Nvidia, the other benefit to working with Intel, also based in California, is tied to geopolitics and supply chain diversification — a dynamic that Jim Cramer explored in his Sunday column for Club subscribers . This is more closely aligned with Washington’s efforts to build up domestic chip manufacturing, which began in earnest with the 2022 CHIPS and Science Act . The legislation earmarked billions of dollars for Intel, TSMC and other chip manufacturers to support their efforts to build and run factories in the U.S. At the moment, TSMC’s most advanced foundries are currently located in its home of Taiwan, the democratically governed island that China claims as its own. That concentration exposes Nvidia to risk if the Chinese government were to step up its aggression toward Taiwan beyond the frequent military drills it conducts around the island off its southeastern coast. Nvidia investors have generally understood this risk — but in this week’s column, Jim argued that President Donald Trump ‘s embrace of Russia in negotiations to end the war in Ukraine heightens the uncertainty about how the U.S. would respond if China were to encroach on Taiwan’s sovereignty. On the campaign trail last summer, Trump criticized Taiwan and said it “should pay us for defense.” The good news on this front is that TSMC — as Kress’ quote above referenced — has established a manufacturing presence in Arizona, with one plant starting high-volume production late last year and at least two more fabs on the way that will produce more advanced chips than the first. On Monday, TSMC announced at the White House a plan to invest another $100 billion in the U.S. , on top of the $65 billion already committed, over the next four years. That should create more capacity that Nvidia could tap into down the road. “It’s a matter of economic security. It’s also a matter of national security for us, and at the same time, Mr. Wei will be able to diversify and have a tremendous presence in another place, in a very safe place,” Trump said Monday. For his part, Wei referenced the company’s American customers, which in addition to Nvidia include Apple , AMD, Qualcomm , and Broadcom. “They all support TSMC’s manufacturing in the U.S. Without their support, we probably cannot make” these investments, the CEO added. The unfortunate news is that Nvidia’s geopolitical problems extend beyond its reliance on Taiwanese facilities, and the prospect of tighter rules on AI chip exports to China is an overhang on the stock alongside broader trade policy uncertainty that’s weighed on Wall Street. NVDA YTD mountain Nvidia YTD It’s manifesting again Monday, as shares were falling about 9%, wiping out their gains Friday and then some. Monday’s decline in Nvidia shares accelerated when the boarder stock market took a leg down after Trump confirmed Mexican and Canadian tariffs will go into effort Tuesday. The stock is now nearly 19% below its recent closing high of $140.11 a share on Feb. 20, with a significant chunk of those losses coming Thursday despite reporting strong earnings the prior night. While strong, Nvidia’s guidance wasn’t as robust as investors have come to expect during the AI boom, and Jim believes short-term options activity exacerbated the move to the downside. Calls for tougher export restrictions on Nvidia’s AI chips grew in late January after Chinese startup DeepSeek emerged on the scene with claims of a lower-cost, more efficient AI model. In response to rules implemented by the Biden administration in recent years, Nvidia created a made-for-China AI chip called the H20 that is less capable than what it sells to customers in the U.S. and other parts of the world. The U.S. is reportedly looking into whether DeepSeek was somehow able to get access to more powerful versions of Nvidia chips than the H20, which comes amid broader concerns about whether Washington’s curbs have been as successful as hoped . More recently, officials in Singapore charged three people in an investigation into whether server suppliers were misled about who would be using the hardware. The servers at the heart of the case may contain Nvidia chips, Reuters reported Monday. Nvidia has said it complies with all U.S. export rules. On last week’s earnings call, executives said the company’s revenue tied to China is about half of where it was before the controls kicked in more than two years ago. “Absent any change in regulations, we believe that China shipments will remain roughly at the current percentage,” Kress said. “The market in China for data center solutions remains very competitive. We will continue to comply with export controls while serving our customers.” The bottom line is that Nvidia is wise to be exploring whether Intel can become a manufacturing partner, even as TSMC makes encouraging moves to expand in the U.S. However, with the export control overhang remaining significant, it’s far too early to say the coast is clear on Nvidia’s geopolitical battles. (Jim Cramer’s Charitable Trust is long NVDA, AAPL, and AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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A Nvidia Blackwell GPU is displayed at Computex in Taipei, Taiwan, on June 4, 2024.
Ann Wang | Reuters
Nvidia investors on Monday were hit with a barrage of headlines about the company’s geopolitical challenges — some good, others not so good. The uncertainty sank the Club stock again as a broader wave of concern also slammed the overall market.
