Today's trading day began fairly innocuously but that benign touch did not last. First, reports emerged that China's NDRC has tightened energy efficiency regulations for domestic data centers, which, for all practical purposes, now exclude NVIDIA's H20 GPUs, thereby threatening $17 billion (13 percent of total revenue) in sales that the GPU giant still derives from China. Then, TD Cowen again flagged Microsoft's accelerating data center lease cancelations, prompting investors to question the sustainability of the ongoing AI-related CapEx. Finally, President Trump capped off an already gloomy day by throwing recession-inducing auto tariffs into the mix.
To wit, TD Cowen analyst Michael Elias leveraged his channel checks to note that Microsoft's data center lease cancelations are "more pervasive" than previously thought:
"Our channel checks at NVIDIA GTC and DCD Connect indicate aggregate data center demand has increased Y/Y despite more pervasive lease cancellations/deferrals by MSFT than initially thought, which created an opportunity for both GOOG and META to backfill capacity."
Elias goes on to note:
"Hyperscale redesigns for higher densities are driving slower DC equipment purchasing, which we view negatively for 1H25 VRT orders."
To put all of this into plain English, Elias calculates that Microsoft appears to have walked away - via lease deferrals and outright cancelations - from over 2GW of data center capacity in the US and the EU over the past six months. While Elias concedes that Microsoft's decision to not support OpenAI's training workloads might have partially prompted this retrenchment, he goes on to declare that the prevailing paradigm "points to data center oversupply relative to its current demand forecast." Of course, do note that Google and Meta have stepped forward to reclaim some of Microsoft's recently freed data center capacity.
The analyst then notes:
"Our channel checks indicate a slowdown in data center equipment ordering, which started in January stemming from the hyperscalers redesigning their go-forward data centers to support higher rack densities as Nvidia continues to iterate on its roadmap, which is pushing rack densities higher."
As the market was still digesting the implications of these fast-paced developments, President Trump entered the proverbial arena with his customary bombast, imposing 25 percent tariffs on all vehicles not made in the US.
Trump (aka Tariff man) found further ways to push the economy into recession today, signing a proclamation to implement a 25% tariff on auto imports, expanding a trade war designed to bring more manufacturing jobs to the US and setting the stage for an even broader push on levies…
— Gary Black (@garyblack00) March 27, 2025
This measure virtually cripples Canada's auto industry, and is almost certain to invite retaliation. With the Atlanta Fed GDP model already predicting a negative GDP growth rate print for the ongoing quarter, some experts think a recession in the US is now unavoidable, especially as today's measure is bound to shrivel trade flows.
The S&P 500 and the Nasdaq-100 both closed in the red by over 1 percent today. Tesla and NVIDIA both closed down over 5 percent.
