Nvidia shares closed 5% lower last night after the White House announced tighter curbs on the sale of advanced AI chips and semiconductor making equipment in a bid to limit their flow to China and nations under arms embargoes such as Iran and Russia.
Wall Street-listed Nvidia confirmed that two of its artificial intelligence chips would no longer be sold in China, adding that it may have to relocate some of its operations.
The company, whose shares have risen more than 200% this year on the back of booming interest in generative AI, represents 5% of Baillie Gifford’s Scottish Mortgage portfolio.
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UBS Global Wealth Management said the tighter US controls were expected, pointing out that competing AI chips from other leading firms may also fall under the ban.
It added today: “Without taking any single-name views, we think global demand excluding China for AI chips will remain robust.
“While we are less bullish on semiconductors than some other tech sectors like software, everything has a price: a further mid-single digit decline for the sector could be a good entry point for high-quality semiconductor stocks.”
It said the bigger question mark is the impact on Chinese tech platforms reliant on these chips for next-generation service offerings. “These large-cap companies need advanced AI chips at scale to train their data sets and stay competitive.”
Scottish Mortgage’s China holdings include ByteDance, Tencent (SEHK:700) and online marketplace Meituan Class B (SEHK:3690), but the trust has reduced its country exposure in the past year after selling its stake in Alibaba (NYSE:BABA) and two smaller positions.
These disposals were driven by concerns about the growth of big online platform companies in China after several regulatory interventions, as well as reflecting disquiet about deteriorating Sino-US relations.
It added in the 2022-23 annual report: “China remains an important market for stock pickers. It is one of the world’s largest economies and home to some of the most innovative management teams we know.
“However, we will continue to manage the overall exposure of the company in light of the geopolitical environment.”
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There was some encouragement for the trust’s China investments earlier today when it emerged that the economy grew by 4.9% year-on-year in the third quarter.
This was better than market forecasts of 4.4% and follows growth of 6.3% in the previous quarter. UBS now expects GDP growth for 2023 of 5.2%, up from 4.8% projected previously and in line with the government’s 5% target.
The bank has also upgraded its estimate for 2024 to 4.4% from 4.2% as the post-Covid rebound of services activities continues and some excess savings are released.
However, it adds that property weakness will linger and that local government finances will remain challenged, limiting their capacity to boost government spending and infrastructure investment.
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