Transcription
So the chip war is getting nastier, and the US is getting really desperate to keep the music on. Now, what the administration wants is to cut China away from the latest and the greatest chips. Nvidia is facing a big revenue squeeze, and their biggest market is evaporating away, the market that they should have had. Lnik himself has announced that Nvidia has not sold their latest H200 AI chips to China. It's not that the domestic market doesn't want US hardware. It's Washington themselves that is blocking chips to China.
Nvidia CEO Jensen Huang isn't happy. He just admitted that the company now has zero market share in China, and it's the US export controls that's backfired on the company. Advanced accelerators in China are no longer coming from Nvidia. Now, this is in contrast to a 95% market share they held just two to three years ago. It's a big fall from grace and is cutting away serious revenue from Nvidia. China represents over half of the global computing market. You lose that, you will eventually lose the AI and hardware race as well.
Now, can you get chips to China? Well, there's always going to be smugglers around willing to take the risk. And they're doing it because the Chinese market is so hungry for advanced AI chips. They are willing to pay top dollar for it. Even domestic Chinese chip makers can't fulfill enough demand. Now, Nvidia's B300 AI chip is one of the latest higher-performance accelerators from Nvidia. It's the cornerstone of chips that power AI models from ChatGPT to Entropic. It costs a lot of money, but China needs so much of it, they are willing to pay an insane amount of money.
Now, Nvidia's B300 AI servers are selling for 7 million R&B in China, which is an incredible amount of money. It's more than double the list price in the United States. It's an incredible profit machine. And that's why we are seeing smugglers go wild buying chips locally and trying to get them to China. You spend $550,000 to make a profit of nearly half a million. It's a crazy sweet deal. It also reflects how desperate Nvidia is to re-enter the China market. They are trying to crack down on smuggling, and it seems the US is trying to identify countries and companies they are flouting the export controls.
Now, Thailand is under the crosshairs of the US, a company there suspected of smuggling billions of dollars worth of servers with advanced Nvidia chips to China. Apparently, US chips are still making it to Chinese companies, billions of dollars worth in fact, but Nvidia isn't making the full amount possible, and it's a blowback effect of technology sanctions.
Now, of course, Trump is sending a delegation down with him to Beijing, and one of the companies represented is Nvidia. Now, the agenda is crystal clear. Jensen wants to convince Trump of the importance of the China market, and if you lose it, the Chinese will take over given enough time. The entire company today relies on the data center business. It's really frightening if we take some time to visualize the reliance. Now, the AI bubble cannot afford to pop in the US, or there goes Nvidia's business. Jensen won't have enough money for those leather jackets anymore.
Now, just four companies contribute to the majority of revenue to Nvidia. These are Microsoft, Meta, Amazon, and Alphabet. It's one big circular finance that keeps the entire tech sector propped up. If the music stops and these four companies stop investing, over 40% of Nvidia's entire revenue could go poof. It could vanish into the ether just like that.
Now, China isn't resting either. There's this air gap of opportunity that allows domestic chip makers to jump in. Now, granted, the Chinese chips are not that advanced as the US, but they are cheaper. So you can simply string a bunch of them together and pump more electricity to them. And considering power is almost free in China, prices are just so low. Companies are really adapting fast. If they can't make up for quality, they'll simply make up with it with quantity. Buy more chips to make things happen.
Now, Huawei is about to launch an upgraded version of the 950 SN chip. And unlike Nvidia, that is focused on making the best chip possible, Huawei is focused on superclusters. They're linking thousands of Ascent chips together as one single unit. And there's a lot of takers in China who kind of love the idea. Huawei's market share of China's AI chips will fly to the moon this year. It will increase by 60% with revenues hitting $12 billion. And these are orders for the older chip. Now, imagine the revenue jump once the 950 upgrade is out. Even more Chinese AI companies will be buying them. They simply can't get their hands on Nvidia chips without paying an arm and a leg. Plus, Chinese chips will eventually get cheaper and cost-effective. You'll be paying more for less. You'll be paying less for more. I mean, we should also acknowledge that Huawei is one of the most formidable technology companies the world has ever seen. They deserve, although they have a lot of support, whatever support they have, they deserve all of the respect. We compete with this company, they're formidable, they're agile, they move incredibly fast. We said if the United States was not in China's AI industry, it would be set back. Absolutely has not happened. As a result, their semiconductor industry has double, double, double.
Now, the recent 326 AI index report from Stanford also shows us the future of AI consumption. It also means which country will demand more chips to train their AI models. This is where future business will be. Now, China's model share of token consumption globally, not just in China, has been growing really, really fast. Other countries and foreign companies are using more Chinese AI models. The market share has increased from 5% to 32% in less than a year. But at the same time, leading US models saw their share fall from 58% to 19%. Which means the US growth engine is starting to stall, and China is rising very, very fast.
Now, the word desperation is really in effect today. The US needs to earn more global revenue. At the same time, the Treasury is also desperate to get more buyers for US bonds. Now, the Genius Act was conceived for this idea, to promote US stablecoins to the world, to get the global working class to pile on more money there. The more money flows into stablecoins, the more bonds will be bought from the proceeds. But there is an adoption issue. Why would I use stablecoins to transact? I can always wire money and make a digital transfer or swipe my credit card. I'm still using dollars that will eventually get debased. The currency will eventually lose more value over time.
Now, the only incentive left is to give rewards or yield on the stablecoins. So let's say you put money into a stablecoin, the industry wanted to reward you with a yield. Now, that would be quite something. It would protect the reserve currency at least for a short while longer. Well, it's probably not going to happen. The US banking system is fighting back on US stablecoins. Wall Street is trying to influence the clarity act, which is going to backfire on the dollar system itself. Now, they are trying to limit stablecoin issuers from providing rewards on the asset.
Now, this is a double whammy. You can't earn interest on stablecoins, and now you can't get a reward like cashback, vultures, or coupons. And if that's the case, who would really want to use stablecoins? There's nothing great about stablecoins. And in fact, it's a negative. If a country's middle class starts using more stablecoins, and Washington decides to impose dollar sanctions, this is going to be disastrous. Suddenly, people would lose access to their money. And by the time you get back your money, if you even get it back, the value will be much lower.
Now, the dollar has been losing so much value that without a yield, it's simply crazy to just use this. It's another example of how there's no unified decision-making in the US. Big interests in Wall Street want to protect themselves, which we all understand. They don't want stablecoins that bear interest to affect their business. It could cause their deposits to simply run away, essentially collapse everything. But you are seeing the future of digital currencies in China. And unlike the US, China has the ability to start paying interest on the digital yuan. They want to boost adoption, and they do it because the whole system is very different from stablecoins.
Now, China's offering interest on its official digital currency, which means the currency, even though it is in digital form, still exists in their entire banking system. The rollout is still local. But once China connects this with their payment rails, it's game over. Now, imagine someone in Brazil or Russia or Uganda being able to save in a Chinese R&B while getting yield. It's a powerful counter to US stablecoins because at least you get tangible rewards. You earn actual interest here.
But let's talk about our final story today. Japan is running out of options. The Iran war has hammered their economy, and their industries are in serious trouble. Now, besides anime and cosplay, Japan is a big manufacturing economy in Asia, and that means competing with China, who's really, really fearsome, which also means you need cheap enough imports. This includes everything from energy to inputs, including steel and aluminum. And not only has the global price of aluminum increased, shipping to Japan is costing a lot more money. Premiums have risen by an incredible 80%. Japan is so far out from the big producers that transporting it there is going to cost a ton.
Now, many companies are repricing their cargos higher for Japan. Everyone is trying to earn and maximize profits now, and this is very bad for Japan's auto industry. Now, China is also desperately buying aluminum and other metals to build their stockpiles, and this is putting an incredible squeeze on global supply. As such, automakers in Japan, they're running to Russia. Russian giant Russo is not part of the US sanctions list, but G7 countries dealing with them would most definitely raise an eyebrow with Washington. Trump won't exactly be happy, but the Japanese simply have no choice at this point. They either start cutting deals with Russia for resources or start to lose market share globally. Their exports would drop because US consumers, they're all going broke. Neither can they compete with China for Asian customers. Now, Chinese products will always be 20%, 30%, or even 40% cheaper with better features and quality to put. Maybe that's why Japan has to keep buying Russian resources.
Now, Japan's Idemitsu just purchased a big shipment of oil from Russia's Sakhalin project. Once again, they are buying cargos not subject to sanctions, and it's a big reminder that the world just can't decouple from Russian energy. It's quite fascinating to realize that the Iran war is increasing the dependency of the world on BRICS. Now, China enjoys a bigger export income because they can manufacture cheaply and they can export deflation. Meanwhile, Russia, being a major commodity exporter, is also raking in big money from the world. US allies like Korea and Japan have no choice but to ensure they get their resources at a competitive price.
Now, even after the Iran war ends, the US will be facing a bigger headache trying to resolve the Ukraine war. Russia is in no desperate hurry to resolve it, and the terms will be overwhelmingly in Russia's favor here. Now, Korea, for example, has resumed buying Russian naphtha. And it's not a small amount. LG Chemicals imported more than 20,000 tons of Russian naphtha. Russia also sells their energy outside of dollars, which means the Koreans likely bought them for either the Chinese currency or Russian rubles. There are many blowback effects of the war.
Now, one of the biggest is how Russia is growing stronger and earning more money. The global disruption is benefiting BRICS much more than the G7. Things are not going as planned for Trump. Russian revenues have almost doubled since February. Putin is selling more gas, and he's selling more oil, which allows Moscow to last even longer against Ukraine and Europe. In fact, Russia can build out and further increase production in Arctic energy fields. And with the Middle East supply shut down, the world still needs energy. And it's going to be impossible for the United States to shut this down.
But let me know what you think. Will China shut out US chips forever? And will even more G7 countries run to Russia for oil and gas? Let me know in the comments below. Stay safe. Be sure to smash the like button and subscribe as we navigate through these crazy times.