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With Nvidia’s revenue from China on a decline, chip technology trade restrictions in place, and Donald Trump talking up tariffs again, Nvidia has surprised quite a few people by doubling down on its hiring in China. Why is the company making this move and will it really help it recover the lost revenues from the second-largest economy in the world?
Nvidia is a household name when it comes to processors. The company has an economic moat that is the envy of many on Wall Street. Its R&D capabilities have brought it to a point where it makes the best AI processors in the world by a long margin. Even though the business already had a strong foundation thanks to sales in gaming, data center, and visualization segments, the advent of AI changed the game altogether and helped the company scale new heights.
Lately, the company has become a chess piece in the AI battle between China and the US. The US was the first to ban the export of Nvidia AI products to China. China recently initiated a probe against the company, alleging violation of anti-monopoly regulations related to the acquisition of Mellanox.
Amidst all this, Nvidia stock is only taking a minor correction from all-time highs hit just last month. The company continues to navigate geopolitical challenges expertly. In continuation of this, it has now announced that it will increase its workforce in China. The main objective is to expand research work on autonomous driving technology. The autonomous vehicles segment is highly competitive in China. Nvidia’s expansion into this segment could be seen as a threat by local technology developers, especially Baidu, due to its technological lead over global competitors.
In addition to adding staff in its autonomous driving division, the company is also expanding its after-sales service team and networking software development team in the Asian country.
Once Trump comes into office in January, it will become clear what’s in store for US-China relations. For now, Nvidia’s expansion plans mean the company is in no mood to give up its China-based business, which has already taken a big hit in the last couple of years, dropping from 26% of the total revenue down to 17%. If the autonomous driving ambitions are allowed to come to fruition by both governments, taking back the lost revenue share will be a piece of cake for Nvidia.
Nvidia ranks 5th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 193 hedge fund portfolios held NVDA at the end of the second quarter which was 179 in the previous quarter. While we acknowledge the potential of NVDA as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
