The US is trying to restrict Chinese AI. What this means for stocks.
The artificial intelligence behind ChatGPT-like products and autonomous driving is hugely driving demand for Nvidia’s chips in China. However, last week analysts lowered their Nvidia price targets following news that the US plans to ban the sale of more high-end semiconductors to China. The country accounts for at least a fifth of Nvidia’s large data center business. Chinese companies also dominate the emerging electric car market, where Nvidia has a fast-growing business selling chips for assisted and fully autonomous driving. When it comes to such chips for cars, Nomura analysts say there is little reason to worry. Their analysis of US regulations found that regulators are focusing on two technical specifications – which the Nvidia Drive AGX Orin chip partially meets. However, the chip is still not powerful enough to meet a key performance metric and it is not used in data centers, the report said. “That’s why Orin remains in the market for car chips BYD, Nio, Li Auto and Xpeng are among the China-based electric car manufacturers that use the Orin chip. Xpeng, which is currently the closest equivalent to Tesla’s “full self-driving” in China, will host a technology day on October 24th. Meanwhile, other companies are launching alternatives to Nvidia’s AI computing products. US-based Kneron is taking a different approach to AI chips, which company boss Albert Liu says is based on neuroscience – rather than the graphics processing that Nvidia uses. He told me last week at CNBC’s East Tech West conference that Kneron’s fourth-quarter sales are expected to increase by double-digit percentage points over the third quarter and by a “multiple” over the fourth quarter last year. According to an announcement in late September, the company is working with Apple supplier Foxconn to develop automotive AI. Weeks earlier, Kneron introduced its KL730 chip and claimed it was 150% to 200% more power efficient than its competitors. Its applications include advanced driving assistance systems. Other customers include Quanta Cloud Technology, South Korean search giant Naver and Japanese and German auto giants, Liu said. He didn’t name the automakers, but claimed that Kneron overall ships “millions of chips” annually. “Everyone has noticed that GPUs are not the perfect solution for AI, so it is easier to convince people to use our solution,” he said. Kneron raised $49 million at the end of September. Simply testing AI models also requires significant computing power, which can become expensive to operate when there is a chip shortage. “GPU-per-hour charging is a common global industry practice, with global cloud providers charging $1 to $3 per GPU-hour to use NVIDIA’s A100 80G chip,” HSBC analysts said in a March 17 report October. Nvidia said in an SEC filing that the new U.S. restrictions would affect sales of its A100 chips and many other products to China, but did not mention Orin. The new US rules are expected to come into force in about a month. Domestic chipmakers While Nvidia may be able to forego automotive chips in China for now, the new measures suggest that more advanced companies may need a license from the U.S. government in the future when shipping to China, Nomura analysts said. In the automotive chip category, Nvidia’s Thor chip and Qualcomm’s Snapdragon Ride Flex chip both fell into this more advanced category. Chinese companies are now building alternatives they have developed themselves. Julian Ma, CEO of autonomous truck driving company Inceptio, told me in August that the company was using a chip from Chinese startup Horizon Robotics. Ma said Inceptio has enough computing power to support it for the next three years. The startup is currently selling trucks with driver assistance software to logistics companies in China. Other types of automation in China seen by stock analysts today don’t even require such advanced computing power. Last week, analysts at Nomura and HSBC raised their price targets on mainland China-traded Inovance, which HSBC described as “the largest domestic factory automation solutions provider in China by revenue in 2022.” HSBC has a target price of 83 yuan, up from 76 yuan previously. That represents an increase of more than 30% compared to Inovance’s closing price on Thursday. Nomura, which like HSBC has a buy rating on Inovance, raised its price target to 76 yuan from 74 yuan previously. “Management attributed the healthy sales growth to the solid growth of its company [new energy vehicle] and automation businesses, which was offset by weak demand in the elevator business during the quarter,” Nomura analysts wrote in an Oct. 17 report. The analysts noted that Inovance increased its market share in engine controls and powertrain systems in China this year. “We believe Inovance’s market share gain in the domestic new energy market was driven primarily by wallet share expansion with key customers such as GAC,” the Nomura report said, noting that the company also has a Buy rating for the Hong Kong-listed automaker.[newenergymarketwasmainlyfuelledbywalletshareexpansioninkeycustomerssuchasGAC”theNomurareportsaidnotingthefirmalsohasabuyratingontheHongKong-listedautomaker[newenergymarketwasmainlyfuelledbywalletshareexpansioninkeycustomerssuchasGAC”theNomurareportsaidnotingthefirmalsohasabuyratingontheHongKong-listedautomaker
