NVIDIA, Defense Metals, Alibaba - Tensions between China and the US are on the rise again

NVIDIA - Not yet severely affected by the tensions

In late August, the US government restricted NVIDIA from exporting artificial intelligence chips like the A100 and H100 to the Middle East. Initially, the restrictions applied only to China. NVIDIA's bottom line is not in jeopardy as a result of the regulations. The last quarterly figures were more than decent and even exceeded market expectations. Revenue of USD 13.5 billion was 102% higher than the previous year. Earnings per share were USD 2.48, USD 0.75 above analyst expectations. There will also be significant growth in the 3rd quarter. Management expects sales to reach USD 16 billion.

Further growth is to be generated by software revenues. In the long term, significantly more can be earned here than at present. The solid quarterly figures were only possible because the group took care of the supply of appropriate materials at an early stage and was thus able to produce sufficient chips. However, NVIDIA's close cooperation with TSMC could turn out to be an Achilles' heel if China should try to get Taiwan under its control. TSMC is, therefore, already building factories in Germany and the US to broaden its production.

NVIDIA has gained an edge in the field of Artificial Intelligence (AI). Even though AMD will now launch similar AI chips on the market, NVIDIA's leading role is not under immediate threat. This week, ARM's IPO on Thursday could impact NVIDIA's stock. Initially, the Company attempted to acquire ARM for USD 40 billion. Currently, the stock is trading at USD 455.72. On the upside, the cap currently seems to be at USD 500. The valuation is considered high by some experts, and there is also a possible scandal that CMC Markets has been researching.

Defense Metals - Expansion of deposit possible

China has built a monopoly in the production of rare earths, with approximately 90% of all rare earths originating from there. Many technologies require the critical raw material to be used at all. These range from wind turbines to smartphones, aerospace, the defence industry and electric vehicles. To reduce dependence, investments in appropriate infrastructure are necessary. Many Western governments are now aware of this as well. Defense Metals has been working on its Wicheeda rare earth project in British Columbia for some time to reduce this dependency. High concentrations of rare earths have been detected on a total of 4,244 hectares. A pilot plant is already producing praseodymium (Pr) and neodymium (Nd).

In mid-August, the Company informed us about the progress of the preliminary feasibility study. The studies, which are being conducted in conjunction with SRK Consulting, cover several areas, including the evaluation of overburden alternatives and geochemical characterization to support mine planning and water chemistry predictions. To date, 13 prospect pits and 4 geotechnical sonic overburden drill holes have been completed, with additional work announced for September. In the process, new potential exploration targets were discovered near Prince George, according to a September 5 press release.

These discoveries were made during a recent ground radiometric geophysical survey. Two previously unknown anomalies may lie within the current mineral resource pit model. The surfaces have similar geophysical structures to known rare earth element mineralization. If the project goes into production, 25,000 tons of rare earth oxides could be sold per year, which currently represents about 10% of the global market. Currently, the stock is trading at CAD 0.19, with an important support level that extends to CAD 0.18. Just below that is another support level at CAD 0.165.

Alibaba - Zhang no longer responsible for the cloud division

A lot is changing at Alibaba at the moment. The stock is a real victim of the simmering dispute between China and the US and the problems caused by the Chinese government, such as the cancellation of the ANT IPO. At the end of March, the group announced it would split into 6 divisions and consider IPOs of each. For now, the IPO of Freshippo, a supermarket chain, was put on hold. The reason was the fear that the targeted valuation of USD 6 to 10 billion could not be achieved.

There are also personnel changes. In June, the Company announced that it would be reshaping its management team with a view to restructuring the Group. Zhang, the group CEO at the time, wanted to make room and take responsibility for the cloud business. There were also rumors of an IPO here, as this business area is seen as promising and offers a lot of potential. Now, he is giving up this post as well. However, he will not be leaving the Company. All these uncertainties have wiped out the established upward trend.

At the same time, the recent increase in sales growth and the implemented cost savings are a positive sign for the future. Through internationalization, the Company should have the opportunity to grow further. Compared to the competition, the fundamental valuation is favorable, but the risks from possible trade conflicts between China and the US ensure this low valuation. Currently, the stock is trading at USD 89.40. Most analysts are bullish on the share and see an average price target of USD 140.18.

The conflicts between the US and China are not favorable for all companies. NVIDIA can sell fewer AI chips to China or the Middle East. Nevertheless, operationally, things are going very well at the moment. Whether there will be a scandal remains to be seen. Defense Metals profits from the tensions because if governments want to become more independent from China, they need the rare earths from Defense Metals. Alibaba has long been trapped in the dispute between the US and China. Those betting that tensions will ease can consider a long-term investment in Alibaba.