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DeepSeek's recent AI-related breakthrough was supposed to have a tangible impact on NVIDIA's top-line metric, as per a previous analysis by Morgan Stanley. Yet, as hyperscalers maintain their CapEx projections, that doomsday scenario remains only a remote possibility for now. Meanwhile, President Trump's tariff-heavy policy toolkit is currently playing havoc with TSMC's pricing strategy.
For the benefit of those who might not be aware, China-based DeepSeek recently shocked the global tech sector with its breakthrough R1 model, which is able to more than compete with OpenAI's o1 model but with just around 1/50th of the typical costs associated with training a complex LLM. However, a new analysis has since then postulated that DeepSeek's CapEx might have been as high as $1.6 billion, entailing operating costs of as much as $944 million.
Regardless of the specifics, DeepSeek's R1 model has unleashed a renewed focus on efficiency to the possible detriment of NVIDIA.
Morgan Stanley Securities pointed out that as Microsoft’s capital expenditure growth slows and its comments on model efficiency improvements negatively impact the supply chain, the shipment forecast for NVIDIA’s GB200 NVL 72 this year has been significantly revised downward from…
— Jukanlosreve (@Jukanlosreve) February 4, 2025
During the DeepSeek-induced industry-wide panic, Morgan Stanley had cited a potential pivot towards greater efficiency on the part of Microsoft, and the corresponding scaling back of the hyperscaler's capital expenditure growth, to reduce its own forecast for NVIDIA’s GB200 NVL 72 shipments this year from 30,000 - 35,000 to just 20,000 - 25,000 units.
Morgan Stanley had also noted at the time that the annual growth rate of cloud-based CapEx might slow to "single-digit percentages" by Q4'25.
No slowdown in FY25 Capex from the Mag7, even with recent DeepSeek AI developments in China:$MSFT: $80B$GOOGL: $75B$META: $65B$TSLA: $10B
— Wall St Engine (@wallstengine) February 5, 2025
However, this doomsday scenario is now unlikely to materialize as Microsoft, Google, Meta, and Tesla have continued to project elevated CapEx for 2025.
Meanwhile, it is not just inter-industry competition that is affecting the narrative around the semiconductor sphere at the moment. Macro policies are having an equally disruptive impact.
Look no further than TSMC, which might be on the receiving end of President Trump's love affair with tariffs as soon as the 18th of February, when chip tariffs are expected to go into effect.
As a refresher, President Trump announced his intention at the end of January to place tariffs on all semiconductors and pharmaceutical products from Taiwan. The move is intended to push TSMC towards localizing more of its production within the US.
Now, according to a Taiwan-based publication, President Trump's chip tariffs might force TSMC to raise its price quotation for advanced processes from the originally planned 5 - 10 percent to over 15 percent now.
Note:
A previous version of the article erroneously mentioned that Microsoft had cut its CapEx for 2025. This error has now been corrected.
