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Shares of Nvidia have experienced a decline of over 2% following reports that Huawei, the Chinese tech giant, is developing an AI chip intended to rival Nvidia’s H100. This information comes from the Wall Street Journal. To delve deeper into the implications for the chip sector, we spoke with Brian Colello, an equity strategist at Morningstar. Brian, it’s a pleasure to connect with you today. Can you provide insights on the potential competition from Huawei? How significant is this challenge for Nvidia?
Brian Colello: I believe this competition poses a serious obstacle for Nvidia, particularly in the Chinese market. The ban on Nvidia’s H200 model seems to have marked a critical point, effectively limiting its ability to sell competitive products in China. I anticipate that Huawei will provide AI chip offerings that are superior to Nvidia’s previous models, including the H200. Consequently, Nvidia may find itself increasingly cut off from the Chinese market, forcing it to focus more on developed markets like the U.S. and Europe, where growth prospects remain strong.
Speaker A: Your comments regarding Nvidia’s challenges in China are quite stark. Given this situation, what direction do you think Nvidia might take? Do you see them possibly spinning off their China operations, or might they choose to abandon those ambitions altogether and shift their focus elsewhere?
Brian Colello: At this point, it seems they’ve already recognized considerable losses, including a write-off of $5.5 billion. We will have more clarity during their earnings report in late May. There may be some semblance of product shipping, but the ongoing restrictions have significantly diminished the importance of the Chinese market for Nvidia. The recent H200 ban and associated financial losses seem to me like a major inflection point. It may be best for Nvidia to withdraw and concentrate on the U.S. market moving forward.
Speaker A: As we look ahead to Nvidia’s upcoming earnings, how should American investors interpret this information? Is there a case for optimism regarding Nvidia in the near future?
Brian Colello: Definitely. Nvidia continues to sell all that it can produce in its Grace Blackwell line. The company is still benefitting from substantial demand from major hyperscalers like Google and Microsoft, which do not show signs of scaling back their spending for 2025. There’s a strong demand for Blackwell processors this year, driven by notable performance enhancements. I remain confident that U.S. companies will sustain their investments in AI, despite broader economic uncertainties. AI represents the future, and spending in this sector is likely to progress, even in the short term. While the setback in China could lead to lower earnings growth this year, the overall outlook for the U.S. market and AI developments remains largely positive.
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finance.yahoo.com