When the Biden Administration intensified its sanctions against Chinese firms. It also mandated tariffs against Chinese exports. As a result, China's electric vehicle and solar panel stocks fell. Selling pressure for stocks like Li Auto (LI), BYD (BYDDF), XPeng (XPEV), and Nio (NIO) will continue. However, investors should watch U.S. companies which may thrive if Chinese companies find loopholes in the U.S. sanctions.
The Information reported that ByteDance (BDNCE) rented Nvdiai’s (NVDA) graphics processing units from Oracle (ORCL). This lets them bypass U.S. sanctions.
China Telecom explored a deal with other cloud providers. Chinese tech giants Tencent (TCEHY) and Alibaba (BABA) held discussions with Nvidia to get chips for their U.S.-run data centers.
Other Chinese research institutes found that they could buy Nvidia’s most powerful AI chips through resellers. By purchasing servers supplied by Super Micro Computer (SMCI) or Dell (DELL), the sanctions had minimal impact on their orders.
Investors should be wary of buying ORCL stock, should the Administration crack down on loopholes. Additionally, it may issue a penalty against Oracle if the company is guilty.
Your Takeaway
The sanction bypass is a double-edged sword for the AI server market. It does not stop China from buying the AI technology it needs. If it did, companies like Oracle and Nvidia would not report such strong quarterly results.
