Nvidia
stockholders could do with a bit of reassurance—and the company is doing its best to give it. A day after the U.S. tightened restrictions on exports of chips to China, Nvidia disclosed an expanded partnership with Foxconn to accelerate the development of self-driving cars.
Nvidia
(ticker: NVDA) said it was teaming up with Foxconn—also known as
Hon Hai Precision industry
(2317.Taiwan)—to build a new class of data centers powering artificial-intelligence technology. The companies are branding them as ‘AI factories.’
The expanded partnership is a sign of new markets where Nvidia’s chips can be used. While Foxconn is best known for manufacturing iPhones, it hopes the factories will help broaden its business, particularly into manufacturing electrical vehicles with autonomous-driving capabilities. Nvidia CEO Jensen Huang has previously said the automotive industry is a $300 billion opportunity for the chip maker.
The Foxconn-Nvidia partnership will be competing with
Tesla
(TSLA) in the race toward full self-driving technology. Tesla currently uses plenty of Nvidia’s chips to improve its autonomous driving software, but CEO Elon Musk has said Tesla’s Dojo supercomputer will use custom chips in the future.
The question is whether the kind of long-term opportunity represented by self-driving cars can reassure Nvidia investors focused on the short-term threat posed by tighter U.S. restrictions on chip exports to China. The initial signs aren’t encouraging.
Nvidia stock was down 3% on Wednesday at $432.11, having closed down 4.7% the previous day, when the U.S. restrictions were announced. While Nvidia stock has nearly tripled in value this year so far, it has fallen back from levels of above $490 at the end of August.
Nvidia might benefit if it can shift the focus from the limits on exports of its graphics-processing units —the favored chips for training AI systems—and toward its wider range of products.
“Foxconn is expected to build a large number of systems based on NVIDIA CPUs [central-processing units], GPUs, and networking for its global customer base, which is looking to create and operate their own AI factories, optimized with NVIDIA AI Enterprise software,” Nvidia said in a statement.
Foxconn stock fell 0.9% in Taiwan on Wednesday and is up 5.6% this year so far. The company is facing challenges in diversifying away from China, whose economy is struggling to rebound from the Covid-19 pandemic, and expanding into areas such as semiconductors.
Foxconn’s chief strategy officer, Chiang Shang-Yi, told CNBC on Wednesday that India could eventually account for 20% to 30% of its manufacturing. He said the company wouldn’t pursue manufacturing cutting-edge chips like those produced by
Taiwan Semiconductor Manufacturing
(TSM) and
Intel
(INTC), but would focus on specialty chips for sectors such as the automotive industry.
Write to Adam Clark at adam.clark@barrons.com
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