Tech stocks in freefall—What does Biden’s new ban mean for the future of AI chips? 🚨

Tech stocks fell significantly after Bloomberg reported that the Biden administration is considering severe trade restrictions on ASML and Tokyo Electron to curb China’s access to advanced chipmaking equipment. Current measures have been inadequate partly because companies like ASML continue business with China. Additionally, cloud providers worldwide, including Google and Microsoft, rent servers powered by Nvidia AI chips to Chinese customers, circumventing U.S. export controls. This has prompted the administration to consider stricter rules. Nvidia and ASML stocks plummeted, with investors concerned about potential future trade policies under Trump.

Despite U.S. efforts, China has advanced its technological capabilities and developed strategies to circumvent restrictions. The economic and geopolitical impacts are significant, with disruptions in the global chip supply chain and increased costs for Western companies. China has retaliated with its own measures, maintaining its technological progress. The long-term effectiveness of these bans in limiting China’s technological ambitions remains uncertain.

The Challenge of Cloud Services

Bloomberg’s report aligns with information from The Information, which revealed that Biden’s chip export controls on China are being undermined by global cloud providers renting servers powered by Nvidia’s AI chips to Chinese customers. The current rules do not apply to cloud services, allowing companies like Google and Microsoft, along with smaller firms in Europe and Asia, to rent Nvidia-powered servers to Chinese firms without restrictions. Even ByteDance, the parent company of TikTok, has been reported to rent Nvidia chips from Oracle in U.S. data centers.

Smuggling and Market Reactions

Adding to the complexity, The Wall Street Journal reported in early July about an informal network smuggling Nvidia chips into China. This has likely prompted the administration’s decision to tighten the rules. The potential for stricter regulations has caused investor panic, particularly among those holding chip stocks. Nvidia’s stock dropped 6.6%, while ASML’s shares fell nearly 13%. Investors are also concerned that if Trump wins the next election, he might adopt an even tougher stance on China trade than Biden.

China’s Response and Technological Advancements

The U.S.-led efforts to restrict China’s access to advanced semiconductor technology have accelerated Beijing’s push for self-sufficiency in this critical sector. Despite significant sanctions, China has made notable technological advancements. For instance, Chinese entities have developed the world’s first fully system-integrated memristor chip and advanced radar chips using sanctioned technology. Huawei’s release of a new smartphone with an indigenously developed 5G modem further underscores China’s growing capabilities.

Circumvention and Adaptation Strategies

China has employed various strategies to circumvent the export controls, such as accessing computing capacity through cloud services in other countries and using slightly downgraded versions of advanced chips that still meet their needs. Nvidia, for example, has produced reduced interconnect variants of its AI chips that can legally be exported to China with minimal performance penalties.

Economic and Geopolitical Ramifications

The chip bans have had significant economic repercussions for both China and the West. China consumes 40% of the world’s chip supply, and any disruptions in this supply chain can have global economic impacts. Additionally, Western companies have faced negative consequences due to these restrictions, leading to increased costs and reshoring efforts.

Strategic Responses and Retaliation

In response to these restrictions, China has imposed its own measures, such as cybersecurity reviews and restrictions on critical materials like gallium and germanium, which are essential for semiconductor manufacturing. These actions indicate China’s strategy to counterbalance U.S. sanctions and maintain its technological trajectory.

Insights

1. Tech stocks fell sharply due to potential new U.S. trade restrictions.
2. Current export controls are undermined by cloud services renting Nvidia chips to China.
3. China’s technological advancement continues despite sanctions.
4. Economic and geopolitical impacts of chip bans are substantial.
5. The long-term effectiveness of chip bans against China is uncertain.

The Essence (80/20)

Core Topics:

1. U.S. Trade Restrictions on Chipmaking Equipment: The Biden administration considers severe restrictions on ASML and Tokyo Electron to limit China’s access to advanced chipmaking technology.
2. Circumvention through Cloud Services: Companies like Google and Microsoft rent Nvidia AI-powered servers to Chinese customers, bypassing U.S. export controls.
3. China’s Technological Advancements: Despite sanctions, China continues to innovate, developing significant technological advancements and using strategies to mitigate the impact of export controls.
4. Economic and Geopolitical Impacts: The chip bans affect global supply chains and Western companies, with China retaliating through its own measures.

The Guerilla Stock Trading Action Plan

1. Monitor Policy Changes: Stay updated on U.S. trade policies and restrictions related to chipmaking equipment.
2. Evaluate Investment Strategies: Reassess investments in tech stocks considering potential regulatory changes and market volatility.
3. Understand Circumvention Tactics: Analyze how cloud services and downgraded chip versions are used to bypass export controls.
4. Track Technological Developments: Keep abreast of China’s advancements in semiconductor technology.
5. Assess Geopolitical Risks: Consider the broader economic and geopolitical implications of ongoing tech conflicts.

Blind Spot

Potential Overlooked Detail: The rapid pace of technological innovation in China may outstrip the ability of U.S. sanctions to effectively curb its progress, necessitating a reassessment of long-term strategies and international collaborations.

QQQ Technical Analysis

The chart shows the performance of the Nasdaq QQQ Invesco ETF (QQQ) over several months. Here’s a comprehensive technical analysis:

Trend Analysis:

• The stock has been in an overall upward trend, indicated by the rising moving averages (50-day MA at 471.04 and 200-day MA at 425.63).
• Recent price action shows a pullback from a high around $490 to $481.77, suggesting a minor correction.

Volume:

• Volume has been relatively consistent, with occasional spikes correlating with significant price movements.
• The latest price drop is accompanied by higher volume, indicating stronger selling pressure.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI):

• The RSI is at 48.74, down from overbought levels. This indicates the momentum is slowing, and the stock is neither overbought nor oversold.

On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV):

• The OBV line has been trending upward, suggesting accumulation. However, it has flattened recently, indicating a possible pause in buying pressure.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More:

• The Stochastic RSI is at 0.000, indicating oversold conditions. This could suggest a potential bounce back if buying interest returns.

Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... More (ADX):

• The ADX is at 33.42, indicating a strong trend. However, it doesn’t specify the direction, so combined with the other indicators, it confirms the recent upward trend but highlights a current loss in momentum.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More:

• The Chaikin Oscillator is at -4,207,823, indicating bearish divergence. This suggests a weakening in the buying pressure and possible continued short-term downward movement.

Time-Frame Signals:

• 3-Month Horizon: Hold. The current indicators show mixed signals with a recent pullback but overall uptrend.
• 6-Month Horizon: Buy. The long-term upward trend remains intact, and current corrections could offer buying opportunities.
• 12-Month Horizon: Buy. Given the strong upward trend in the 200-day MA, the long-term outlook remains positive.

Past performance is not an indication of future results. This article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

While the microchip bans have undoubtedly slowed China’s access to certain advanced technologies, they have also spurred significant domestic innovation and adaptation. The long-term effectiveness of these bans in curbing China’s technological and geopolitical ambitions remains uncertain, as China continues to develop alternative strategies and technologies to mitigate the impact of these restrictions. The global semiconductor landscape remains volatile, with ongoing geopolitical tensions shaping the future of technological development and trade.