Nvidia Plans to Establish $500B Worth of Domestic Production Chain
Key Takeaways
- Nvidia plans to shift $500B worth of AI server supply chain to the US.
- It has partnered with companies like TSMC, Foxconn, Wistron, Amkor, and SPIL.
- This is a direct positive effect of import tariffs imposed by Trump. Other companies might follow suit.
Trump's tariff was met with severe criticism from business leaders worldwide. However, the positive impacts of these levies have started to come through.
Nvidia, the world's leading AI chip producer, has announced its plans to build $500 billion worth of AI servers in the US. Until now, a large part of Nvidia's operations have been based in Southeast Asia. However, imposing tariffs would make it infeasible for the tech giants to sustain overseas production units. Hence, the switch.
Nvidia and partners such as TSMC, Foxconn, Wistron, Amkor, and SPIL will build a complete AI server supply chain in the US. This includes a plant in Texas to build AI servers and server assembly plants in Dallas and Houston.
It's worth noting that this will be the first time Nvidia will assemble its AI product within the States. The line is expected to be operational in the next 12-15 months.
Another partner, TSMC, has already started the production of Blackwell processors in Phoenix. SPIL and Amkor will establish packaging and testing operations in Arizona - something that's currently done in Taiwan.
Donald Trump said that this is a direct result of the tariff imposition. D.A. Davidson analyst Gil Luria also said that Nvidia would have never considered moving manufacturing to the US if not for Trump and his tariffs.
The CHIPS Act, which provides financial assistance to companies for domestic chip production, can also be a factor at play here. Nvidia may be eyeing up a sizable chunk of the grant by moving its production onshore.
What Does This Mean for the US?For starters, domestic manufacturing won't be as cheap as getting it done in Taiwan, owing to the high labor costs in the US. However, the benefit outweighs the costs of this move.
It's no secret that AI tech will be at the forefront of the tech industry in the next decade. Whoever controls AI tech controls global markets. Right now, this power isn't with the US, something a giant won't be comfortable with. Considering the omnipresent tension between the US and China, China is the last country the US would want controlling AI production.
A leading AI company like Nvidia pulling out of the Southeast Asia production line can have far-reaching impacts. It puts the US back in the lead. Imagine $500B worth of production shifting to domestic shores. It creates more employment, saves shipping costs, and gives Nvidia more control over production and packaging.
More importantly, this can also start a domino effect, with other companies following suit. Apple has already made similar commitments in February to establish domestic manufacturing. So, this $500B number can swell up to a few trillion in the next five years. It will surely rattle China, but that's precisely what the US may be after.
Nvidia will use its own in-house technology, like Omniverse and Issac GR00T, to improve every step of the production chain. With more automation and robotization, the actual costs of assembled systems are also expected to go down in the long run - a win-win situation for the company.
Cross-Border TensionsAnother interesting angle to the whole development is the China-Taiwan-US relations. Now, Taiwan considers itself an independent state, whereas China considers it a part of the China One' region and wants it to come back to mainland China, by force if not by will.
The US, however, doesn't officially recognize Taiwan as independent. For the US, this means cutting ties with or disrupting manufacturing in Taiwan is as good as an economic attack on China itself. China, too, may not be too impressed with this decision and may retaliate in some way or the other.
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