The Biden administration’s embargo on exports of artificial intelligence chips to the Middle East has caused a sell-off in the broader semiconductor sector. Stocks such as VanEck Semiconductor ETF (NASDAQ:SMH) and iShares Semiconductor Exchange Traded Fund (NASDAQ:SOXX) are down nearly 3% as a result. This embargo has affected companies like Nvidia Corporation (NASDAQ:NVDA) and Advanced Microdevices Inc., triggering a massive sell-off in shares. These restrictions are part of a review of high-volume sales to the United Arab Emirates and Saudi Arabia, similar to restrictions imposed on China in 2023.
In response to these developments, CEOs of chip companies met at the Computex event in Taiwan to discuss the future of AI. Mizuho Analyst Vijay Rakesh reiterated a Buy rating on Qualcomm Inc. (NASDAQ:QCOM), Micron Technology, Inc. (NASDAQ:MU), Western Digital Corporation (NASDAQ:WDC), and Seagate Technology Holdings Plc (NASDAQ:STX). Rakesh cited upcoming catalysts such as Computex in Taiwan and Micron’s quarterly earnings in June as reasons for his optimism.
Rakesh highlighted the increasing importance of AI at the edge, as OEMs are integrating AI capabilities into devices like mobile phones and PCs. Qualcomm’s AI PC with Snapdragon X Elite/Plus is set to launch in over 20 models in the second half of 2024, with additional wins expected. The demand for AI-enabled devices is also expected to drive increased DRAM content in both PCs and phones, benefiting companies like Micron.
Additionally, Western Digital and Micron are likely to see benefits from higher NAND content in AI devices, while Seagate stands to gain from increased PC storage content and improved cloud capex. Rakesh suggested that between 2024 and 2027, around 1 billion AI-enabled smartphones could be shipped, with AI-enabled PCs representing over 60% of the PC market by 2027.
As a result of these developments, NVDA shares were trading down 1.90% at $1,084.87 at the last check on Friday. The semiconductor sector is facing challenges due to the US government’s embargo on AI chip exports to the Middle East and ongoing geopolitical tensions. However, there are opportunities for growth in AI-enabled devices and increasing demand for semiconductor components in the coming years.
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