Chips as the new bargaining chips

Welcome to AI Collision 💥,

In today’s collision between AI and our world:

• TSM is BANNED
• NVIDIA is BANNED
• Who isn’t banned?

If that’s enough to get the stop sign planted, read on…

AI Collision 💥

Taiwan Semiconductor Manufacturing Co. (TSMC) can no longer freely ship U.S.-made chipmaking tools to its factory in Nanjing.

From 2026, every export needs a case-by-case approval. The fab only makes 16nm and 28nm chips there, so hardly cutting edge stuff, and accounts for a measly 2.4% of TSMC’s revenue.

But that’s kind of not really the point. The message it sends here is enormous. Washington is tightening its grip on the world’s silicon supply lines and it doesn’t care if you’re the world’s biggest chip maker or if you’re the world’s biggest chip designer.

In fact this isn’t really about chips at all. It’s about reminding Beijing that even “mid” silicon needs to pass through American checkpoints. The U.S. is showing it can flick the switch on access to compute at will.

If you think TSM is the only one caught in the political crossfire here, well, they’re not.

No company sits more awkwardly in this crossfire than Nvidia. Its flagship A100s and H100s were barred from China. So Jensen Huang came up with a “China-safe” workaround, the H20.

A bit like TSM’s big-NM chips, kind of oldish stuff, not as good, but still handy when it needs to be.

Then… that got banned too.

Until July, when the Trump administration struck a bizarre compromise.

Nvidia could sell the H20 again—but only for 18 months, and only if it paid a 15% “commission” on every chip sold into China. That’s the new toll.

Nvidia dutifully lined up 300,000 H20s made by TSM. But in its official outlook it assumed zero sales to China. Why? Because Beijing immediately pushed back.

China’s state media came out saying the H20s weren’t safe for China. So regulators leant heavily on Tencent, Baidu and other AI chip buyers, warning them about “security risks” of U.S. chips. The message there was clear too, buy Chinese silicon or suffer the wrath of the CCP.

This back-and-forth reveals the real game. Compute power is the new bargaining chip for the political establishment.

Washington wants China tethered to U.S. chips, software, and tooling. Not cut off completely, but never self-sufficient. That keeps leverage in American hands.

Beijing sees the danger. So they’re pumping the locals hard.

Huawei’s Ascend chips, made at SMIC’s 7nm process, are now the best China can get domestically. They aren’t as advanced as Nvidia’s 4nm GPUs, but they’re “good enough” for many AI workloads.

Huawei is said to be selling them abroad, or at least trying very hard to looking at regions like the Gulf, Southeast Asia, markets less constrained by U.S. pressure.

Reailty is domestically they’re looking like the provider of choice, but they’re pushing up a big hill elsewhere. So maybe the ball really is in the U.S’s court.

The good news is that with all this polticial hot-potatoing, there are some distinct winners, and losers from this. Which creates opportunites for investors.

Winners…

• China’s chipmakers. Huawei’s AI silicon sales exploded when Nvidia was locked out. SMIC is learning fast with guaranteed domestic demand. Captive markets are accelerators of progress.
• U.S. tax office. That 15% levy on U.S. chip sales to China is an entirely new class of tariff, AI chips as taxable commodities. Washington takes a cut and keeps a leash on Nvidia and AMD at the same time.
• The Middle East and other non-aligned buyers. Saudi Arabia, the UAE, Thailand—they get courted by both Nvidia and Huawei. They can arbitrage the demadn and the copious funds they have to deploy, buying the best deal, often with strings attached that serve their own ambitions to become AI superhubs.
• AMD. Long in Nvidia’s shadow, it’s included in the new U.S. licensing scheme. Chinese buyers nervous about being too dependent on one supplier might give AMD’s AI chips a look. The UAE is said to already be looking to them (and others) to diversify away from Nvidia.

The losers…

• Chinese AI firms. Alibaba, Tencent, Baidu, they’re left with inconsistent supply and inferior options. Innovation slows when your chip plan is at the mercy of regulators on both sides. They may well fall behind at speed in the AI infrastructure race.
• U.S. equipment makers. Applied Materials, Lam Research, KLA, they’re collateral damage. When Washington restricts tool sales, they lose orders. China will eventually fill that gap with domestic suppliers. That’s a long-term risk the market underplays.

So where should investors look?

TSMC actually looks surprisingly resilient. Every few months the market panics about Taiwan and China, yet the direct revenue hit is tiny, and global AI demand keeps its fabs running hot. Overdone sell-offs on geopolitical news might be opportunities.

Nvidia too is unsurprisingly able to generate massive revenues and profits even with zero sales into China. Imagine what happens when they can sell there at mass, again.

And don’t ignore the Gulf. If Huawei builds AI data centers in Dubai or Nvidia strikes billion-dollar supply deals in Riyadh, those infrastructure providers—local telcos, cloud firms, and contractors—could quietly become the next AI beneficiaries.

A revoked license here, a temporary export waiver there, what looks like bureaucracy is actually strategy. Chips are no longer just chips. They are levers of national power, bargaining chips in every sense.

For investors, the trick is look at more than just, “Which company makes the best silicon?” and start thinking, “Which company sits in the right place on the chessboard?”

The best product doesn’t always win, sometimes it’s the best positioned.

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Capital at risk

Boomers & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

Boom 📈

• Alibaba (NYSE:BABA) up 11%
• Alphabet (NASDAQ:GOOG) up 10%
• Western Digital (NASDAQ:WDC) up 6%

Bust 📉

• Vertiv (NYSE:VRT) down 2%
• AMD (NASDAQ:AMD) down 3%
• Taiwan Semiconductor (NASDAQ:TSM) down 3%

From the hive mind 🧠

• This is about as Australian as you can get for a novel use of AI. Steve Irwin would be proud!
• There’s talk Apple’s big AI ambitions is going to centre around web search using an advanced Siri AI. Thankfully for Google they get to keep Chrome, which means for Apple, if they can dominate a new era of AI web search… maybe there’s a lot of life left in the old dog yet.
• This whole thing is WILD! Stealing code base, taking from Elon to give to Sam, restraining orders, court cases… I might dive into this next week because it’s shaping up as anohter big chapter in the Musk vs. Altman fued.

Artificial Polltelligence 🗳️

Weirdest AI image of the day

ChatGPT’s random quote of the day

Thanks for reading, and don’t forget to leave comments and questions below,

Sam Volkering

Editor-in-Chief

AI Collision