NVDA: Loss of China business to be offset by the new Texas facility
Does the loss of the China business fundamentally change the trajectory at NVDA? We do not believe so. That the China business was at risk should come as no surprise; there had been plenty of warning from the previous administration. The Trump administration, in this one instance, is merely carrying out the guidance provided by the outgoing Biden administration.
In the immediate aftermath of the announcement, the loss of a geography accounting for low-mid teens percentage of revenue will no doubt take its toll. The large size of the H20 write-down needs to be acknowledged. However, it is not as if the H20, at an appropriate discount, cannot find buyers here in the US, especially as US CSPs rollout DeepSeek. We note that DeepSeek is believed to have been trained on H20-type GPUs. After a pull-back, we expect the stock to get off the mat and find buyers.
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Texas to the rescue: We think it no coincidence that the announcement of NVDA/Foxconn building a new manufacturing campus in Texas preceded the China licensing filing. We think NVDA management expects investors to connect the dots. Over the next 12 months, we expect the Texas campus output to offset the loss of China business by speeding up deliveries to US customers.
We had anticipated: In a note published last week, we had anticipated the construction of the new US-based manufacturing facility (link). Our checks had shown Foxconn repurposing the old HP/Compaq campus in Houston. We had noticed component suppliers setting up labs near the Foxconn campus. While media articles reported the plant to ramp up production in the next 12-15 months, we wrote in our note that we expect the campus should start initial shipments of servers as early as 2CH25.
Net/Net: We expect the China loss of business to be more than offset by the Texas plant. Opening of the new facility in the US should help centralize manufacturing, speed up shipments and close the supply gap with demand from US customers.
Impact to TSM? While some level of turbulence is to be expected, we do not expect NVDA’s loss of China business to meaningfully slowdown its wafer starts at TSM.
Trading call: We would be buyers on weakness of NVDA and MU
KC Rajkumar