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NVIDIA & ARM Partnership: Are Chip Stocks Rebounding?

Plus500 | Tuesday 24 October 2023

It is no secret that chip stocks, particularly US-based ones, have been under the radar recently.  This heightened focus stems from chip export restrictions initiated by two of the world's most influential economies—the United States and China. Specifically, the US has restricted the export of Artificial Intelligence (AI) chips to China.

Consequently, last week, leading chip companies such as NVIDIA, AMD (AMD), and Intel experienced a decline in their stock prices as concerns about the future prospects of these companies became more pronounced.

Nonetheless, despite these stocks’ gloomy performance last week, it seems that this trading week has begun on a more positive note, especially in relation to NVIDIA and the recently publicly listed British company ARM.

From NVIDIA, ARM, and Intel to US-China bans, here are the latest notable updates in the chip market:

An illustration of AI chips

US-China Bans: Market Sentiment Update

The dynamic between the US and China is acknowledged to be fraught with tension, a sentiment that extends to the broader technology sector and, more specifically, the chip market.

As mentioned above, last Tuesday, the US declared its intention to limit the export of AI chips to China. This announcement likely dismayed numerous investors and traders, amplifying concerns about the future prospects of US chip stocks like NVIDIA (NVDA). This is because NVIDIA generates approximately 10% to 20% of its AI sales from China, hence causing sell-offs in the chip market last week. 

While many may be bearish on chip stocks in light of these bans, some tech investors, like Chloe Wang, VP of Yang Cheng Fund, think that this is “great news.” However, it seems that this news may be great for the Chinese market, rather than the US. 

According to Wang, the US restrictions on chip exports to China, may prompt the latter to create its own “ecosystem” and limit its reliance on US services such as NVIDIA’s Cuda system. This, according to her, is important to China, especially in light of the fact that the Chinese market has a “shortage of companies in the AI chip training sector,” and the latest escalations may help bridge the gap. 

Still, the actual effects of the ongoing US-China chip war are yet to be seen on both the US and the Chinese markets.

New Partnership: ARM & NVIDIA’s Monday Boost

While last week may have been far from positive for many chip stocks, this week started on a more positive note for both ARM (ARM) and NVIDIA as a new partnership was announced. 

According to a Reuters report published yesterday, it was revealed that NVIDIA, a prominent tech giant and a frontrunner in the chip industry, is integrating ARM's technology into its latest PC designs.

ARM, which became publicly-traded in September got a much-needed boost on Monday as it rose by 6.3%, while NVIDIA gained 4.2% hence reversing some of last week’s losses.

But NVIDIA is not the only company to express its interest in ARM, it was reported that American multinational semiconductor company, AMD, also wants to integrate ARM’s technology in the making of PC chips. NVIDIA and AMD would be joining, Qualcomm (QCOM), which has been using ARM technology in the making of its laptop chips for about seven years now. (Source:Reuters)

Decoding the Implications for Intel: Competitor in Trouble?

While Monday ended well for NVIDIA and ARM, competitor Intel (INTC) which also manufactures microchips, actually ended Monday on a more dreary note as it slid by 2.3%.

This can be attributed to the belief that NVIDIA's supremacy in the AI computing chips market might surpass Intel's longstanding dominance in the realm of personal computers.

Some even note that “NVIDIA, AMD, and Qualcomm's efforts could shake up a PC industry that Intel long dominated.” Moreover, adding to Intel’s pressures is the fact that Apple (AAPL) uses ARM-made chips in its products like Mac computers, which were deemed efficient by Microsoft (MSFT).

Nonetheless, as of now, Intel still maintains a majority share in the PC chips market, and it is also worth noting that sales of PC chips accounted for over half of Intel's revenue in the June quarter. 

In addition, Intel has incorporated AI capabilities into its chips and showed laptop functionalities akin to ChatGPT, which may also affect the company’s trajectory.

Who Else May Be Affected?

One tech expert noted that while NVIDIA may be “on the top of the tech world,” it is important to keep in mind that many big companies like Meta (META) and Amazon (AMZN) among others are actively engaged in the AI revolution, vying for the supply of chips that Nvidia can produce.

This means that the tech race may be more intense than ever, especially for companies seeking to develop their own AI chips in order to reduce their reliance on NVIDIA. Analyst Bob O’Donnell explains that “no one wants to be completely beholden to one company,” and “everybody wants to have a variety of different options to purchase from again.”

Further adding to the competition is the fact that AMD and Intel are building chips and services to contest with NVIDIA’s products.

Nevertheless, even amid heightened competition, NVIDIA is vigorously striving to uphold its dominance by enhancing its super-chip, the "GH200." This upgraded version boasts improved memory technology and is anticipated to hit the market next year. 

Therefore, staying up-to-date on developments and product releases from these companies can provide valuable insights into the trajectory of the booming AI industry and its implications for the tech sector as a whole. (Source:Yahoo Finance)


In short, whereas US-SINO chip bans took a toll on the shares of many chip companies like NVIDIA last week, this week may have provided many investors and traders with a much-needed boost for both NVIDIA and ARM following news of a new partnership. 

Still, whereas in the meantime NVIDIA seems to be dominating the AI and chip industry, many companies like Intel and AMD are working to overtake NVIDIA’s market dominance by developing their own AI chips and products. 

However, the partnership between NVIDIA and ARM did not have a positive impact on Intel in the short term, and the direction of the industry in the near future is still uncertain and requires careful observation.

This information is written by Plus500 Ltd. The information is provided for general purposes only, and does not take into account any personal circumstances or objectives. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. No representation or warranty is given as to the accuracy or completeness of this information. It does not constitute financial, investment or other advice on which you can rely. Any references to past performance, historical returns, future projections, and statistical forecasts are no guarantee of future returns or future performance. Plus500 will not be held responsible for any use that may be made of this information and for any consequences that may result from such use. Hence, any person acting based on this information does so at their own discretion. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research.

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