The Unusual Risk For Nvidia And Taiwan

Todd Moses
May 31, 2024

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.

Inputs that matter: 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.

  • An invasion would spell disaster for the global economy as Taiwan manufactures 70% of the world's semiconductors.

The opportunity: Tensions between China and the U.S. are boiling over semiconductors.

  • Semiconductors are becoming strategic decisions for companies and a matter of national security for countries.
  • CNBC reports, "In October last year, the U.S. tightened restrictions to prevent the sale of artificial intelligence chips and semiconductor tools to China."

Zoom in: If the island is overtaken, Nvidia's biggest supplier, Taiwan Semiconductor Manufacturing (TSMC), might fall into Chinese hands.

  • TSMC makes the chips.
  • If a Chinese-controlled TSMC refuses to make chips for Nvidia, no one else could step in to replace it within a reasonable period.

Between the lines: Defense Analyst says China will likely use armed autonomous robots in a potential invasion of Taiwan.

  • "We are moving forward on those weapons systems. I'd like to see it faster, but they are forthcoming," Michael McCaul, the House Foreign Affairs Committee chairman, told reporters after meeting Taiwan President Lai Ching-te
  • He added that Taiwan needs to have sufficient weapons to show Chinese President Xi Jinping that the risk outweighs the rewards of invading the island.
  • McCaul added that Taiwan should focus on maritime weapons like Harpoon anti-ship missiles to deter an invasion.

Follow the money: Nvidia's (NVDA) highly anticipated earnings release was recently delivered.

  • The company's financial metrics surpassed Wall Street's expectations, sending shares soaring nearly 20% three days after its earnings release.
  • "There is no precedent for a stock of NVDA's size having its post-earnings share surge 'ignored' by the broader S&P 500," Evercore ISI's Julian Emanuel wrote.
  • "This divergence is a catalyst for greater movement at the S&P 500 level in front of other event catalysts."
  • Emanuel pointed out that Nvidia's decoupling from the market comes as large-cap stocks have become less correlated with each other recently.

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