Artificial intelligence chip companies including Nvidia Corp (NASDAQ:NVDA), Broadcom Inc (NASDAQ:AVGO), Marvell Technology Inc (NASDAQ:MRVL), Advanced Micro Devices Inc (NASDAQ:AMD), Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM), Micron Technology Inc (NASDAQ:MU), Arm Holdings plc (NASDAQ:ARM), Intel Corp (NASDAQ:INTC) were under pressure on Tuesday.
They are reacting to the news that China increased subsidies for major data centers, cutting their energy costs by as much as 50% to support domestic chipmakers, the Financial Times reported on Tuesday.
The USA chip stocks got a boost from an exciting earnings season that vouched for continued AI spending by the U.S. Big Tech giants, including Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc (NASDAQ:META), Amazon.com Inc (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL).
Local governments in data-heavy provinces such as Gansu, Guizhou, and Inner Mongolia rolled out these incentives to help tech giants like ByteDance, Alibaba Group Holding Ltd (NYSE:BABA), which have been grappling with surging power costs after Beijing barred companies from purchasing Nvidia AI chips.
Nvidia's China Woes
The increased subsidies come in the wake of President Donald Trump's declaration that Nvidia's advanced Blackwell AI chip will not be available for "other people," as a strategic move to keep the technology out of China's reach.
However, Nvidia CEO Jensen Huang stated that China already has a strong semiconductor ecosystem and that collaboration benefits both nations. He described China as an irreplaceable and "dynamic market."
Despite the ban, CNBC commentator Jim Cramer argued that the policy still leaves Nvidia with "a lot of latitude" to operate in China, emphasizing that Trump has not "banned Nvidia from China."
Alibaba
Alibaba's stock also dropped on Tuesday after the report. It is a key Nvidia client, also known as China's tech barometer.
Industry sources said authorities introduced the subsidies after tech firms complained about higher energy expenses from using less efficient homegrown chips developed by Huawei and Cambricon.
As part of this push, Alibaba launched a new computing pooling system, Aegaeon, that slashed its reliance on Nvidia graphics processing units by 82% for AI model training.
U.S. and China have been at loggerheads since Washington imposed technological sanctions on its Asian counterpart, triggering a semiconductor chip crisis for gadgets ranging from smartphones to automobiles. China followed with its retaliatory measures.
NVDA Price Action: Nvidia shares were down 2.44% at $201.83 at the time of publication on Tuesday. The stock is approaching its 52-week high of $212.18, according to Benzinga Pro data.
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