Banananomics: Nvidia (NASDAQ: NVDA) Warning

Nvidia (NASDAQ: NVDA) Warning

Causal connections: A military expert who predicted Russia's invasion of Ukraine estimates that if China decides to invade Taiwan, it would all be over before the U.S. had the chance to do anything.

• CNBC reports, "In October last year, the U.S. tightened restrictions to prevent the sale of artificial intelligence chips and semiconductor tools to China."

• Within the first 15 minutes of the invasion, the island's airports would be taken, and by 30 minutes, troops would have seized the capital.

• If the island is overtaken, Nvidia's biggest supplier, Taiwan Semiconductor Manufacturing (TSMC), will fall under Chinese control.

Inputs that matter: China plans to invade Taiwan in early June.

• NVIDIA did +5.62% last week.

• A stock split is happening on June 6th.

• Days after the split, an invasion of Taiwan is expected.

• If a Chinese-controlled TSMC cannot make chips for Nvidia, no one else will be able to step in to replace it within a reasonable period.

The opportunity: In December, Nvidia CEO Jensen Huang announced a new investment in manufacturing chips in Vietnam.

• The Vietnamese government noted that Nvidia had already invested $250 million in the country.

• Fears over the vulnerability of Nvidia's current manufacturing hub in Taiwan, which partners with contract chip maker Taiwan Semiconductor Manufacturing, are driving the investment.

• However, the country lacks the infrastructure to manufacture chips anytime soon.

Zoom in: The Vietnamese government said it aims to train 50,000 high-quality engineers by the end of this decade, with a particular focus on those specializing in semiconductor chip design.

• Meanwhile, China has already set a new normal in the Taiwan Strait, steadily ramping up military pressure on the self-governed island.

Between the lines: Nvidia has a product that is in demand but 100% reliant on Taiwanese manufacturing.

• While China's invasion of Taiwan will impact many technology companies, it is especially problematic for Nvidia.

Further reading:

• https://banananomics.co/the_unusual_risk_for_nvidia_and_taiwan

• https://banananomics.co/china_plans_taiwan_invasion_by_early_june

• https://banananomics.co/what_happens_when_the_us_arms_taiwan

• https://www.barrons.com/articles/nvidia-stock-chips-taiwan-vietnam-47648342

• https://www.businessinsider.com/nvidia-ai-chip-semiconductors-tsmc-intel-jobs-arizona-2024-2

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