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Chips on the table: How Baidu’s move to Huawei could impact NVDA

Chips on the table How Baidu's move to Huawei could impact NVDA

So far, the shares of the chip-making giant Nvidia (NASDAQ: NVDA) have vastly outperformed the S&P 500 throughout 2023 and are up nearly 220% since the beginning of the year. 

The stellar rise has largely been driven by high demand for the company’s advanced artificial intelligence (AI) chips and boosted an outstanding Q2 earnings report.

Things may, however, soon take a turn for the worse as China’s Baidu (NASDAQ: BIDU), a major customer for Nvidia’s AI chips, recently started placing orders with Huawei instead, according to a Reuters report from November 7. 

Throughout 2023, the Chinese company has been fulfilling a Baidu order for 1,600 910B Ascend AI chips and has, by the time of publication, delivered approximately 1,000. The current order from Huawei is relatively small compared to previous deliveries from Nvidia but marks a significant shift for the company.

Why is Baidu moving away from Nvidia?

The fact that 910B Ascend AI chips are significantly less advanced than what Nvidia has to offer, combined with Baidu’s long-standing relationship with the American company, has left many wondering what is the reason behind the switch. The answer, ultimately, most likely boils down to new restrictions imposed by the US government. 

The United States has recently implemented new export controls specifically designed to limit access to highly advanced components for its international competitors. As Finbold reported in late October, the decision put as much as $5 billion worth of Nvidia’s orders scheduled for 2024 at risk of cancellation.

Additionally, while the chip-making giant attempted to make advance deliveries, it was allegedly warned by the United States government that the new export controls were effective immediately. Therefore, Baidu’s decision is likely designed to lessen the deprivation of advanced AI chips caused by the new restrictions.

How will the limited access to the Chinese market impact NVDA?

The latest news on the topic of Nvidia’s future ability to access the Chinese market has left many investors worried about whether the company’s stock will manage to maintain its staggering growth. In that context, it is important to note that throughout the year, there have been multiple reports hinting that the chip maker might be in trouble.

In September, for example, the French competition authority raided Nvidia’s local offices, causing a temporary drop in the price of the company’s shares. Despite this turn of events, the stock started to recover by late October and is again approaching its 2023 highs – even in the wake of the news of the export restrictions.

In fact, the company itself said that the new limitations are not likely to impact Nvidia’s business in a significant way and, at the time of publication, NVDA is standing at $457.51 – meaning it has risen an additional 1.66% in the last 24 hours. It has, however, declined slightly in Tuesday’s pre-market by approximately 0.24%.

NVDA 1-day price chart. Source: Finbold

Wall Street also remains optimistic about Nvidia’s prospects and is expecting its revenue to rise to about $84 billion in fiscal year 2024. Either way, it will be interesting to see if the company has maintained its impressive results from the second quarter once it releases the Q3 earnings report on November 21.

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