Finimize - 💔 Nvidia misses China

What’s going on here?

After Boeing’s planes were grounded in the US, the aircraft manufacturer’s stock could be on the way out.

What does this mean?

Boeing 737 Max planes don’t have a reputation worth envying. Quite the opposite: their background is enough to make even frequent fliers book a week-long bus trip instead. The aircrafts were responsible for two deadly crashes five years ago, prompting a worldwide grounding and safety inspections. Then last Friday, an Alaskan Airlines Boeing 737 Max 9 plane confirmed that the aisle seat is worth upgrading for, when a panel blew out of a mid-air Alaska Airlines flight. And because the same sealable panel can be found in every single Max 9, rather than being an individual fault, the Federal Aviation Administration (FAA) had no choice but to ground 171 aircrafts of the same type. That might affect United and Alaska Airlines, the only two US airlines that use the controversial craft. But Boeing and Spirit AeroSystems – the supplier involved with the 737 Max – have already started suffering the consequences, with their stocks slipping 8.5% and 13% before midday on Monday respectively.

Why should I care?

For markets: Clear the air.

Boeing had planned to churn out more 737 models this year, not least because the company’s under pressure to get its factories working as hard as they were before the pandemic. After all, airlines want more planes and investors want more profit. But the FAA’s grounding could put a halt to those ambitions – and give rivals a chance to eat into Boeing’s share of the market. No wonder European company Airbus saw its stock pick up by more than 2% on Monday.

The bigger picture: All for one, and one for itself.

Boeing’s "partnering for success" program has been hot gossip in the aviation industry for the last few years, with the tactic said to squeeze suppliers in a bid to make maximum profit. Now, the Alaska Airlines incident might come to symbolize that pushing suppliers to the brink is bad for business in the long term. But that lesson could’ve been learned in October, when Boeing was forced to grant Spirit AeroSystems better contract terms to save the supplier from a cash crunch.

What’s going on here?

Chinese tech companies refused to settle for run-of-the-mill chips, forcing US chipmaker Nvidia to play at being average for once.

What does this mean?

The US is determined to be the first country to make next-level artificial intelligence systems, so it’s banned semiconductor companies from selling their smartest chips to China. That’s been a non-stop blow for Nvidia: big-money Chinese customers Alibaba and Tencent aren’t willing to accept second-best wares, slashing their orders for this year. So while Chinese cloud companies currently source around 80% of their high-end chips from Nvidia, experts predict that a prolonged ban could bring that number closer to 50% over the next five years.

Why should I care?

For markets: Shop local.

Nvidia’s smartest chips are a cut above the rest, but the type it’s allowed to export to China aren’t much better than local alternatives. That means Chinese tech companies might as well get their fix from domestic firms like Huawei, especially if that extra funding means they can make smarter chips faster. Layer on the prospect of increasingly fraught relationships between major economies, and the Chinese market could be Nvidia’s one that got away.

The bigger picture: Hail Mary.

Despite the US’s best efforts, China is plowing ahead with plans to dominate the artificial intelligence market. The country’s dedicated data agency has carved out a three-year plan that should see the faltering economy benefit from cutting-edge smarts. The outline depends on China successfully developing large-language models – the type of tech behind ChatGPT – to stay on track, although that could take longer to materialize than the stumbling country would like.