Nvidia (NASDAQ: NVDA) just became the latest company to get hit by the trade war.
On Wednesday, the stock tumbled after it announced that it would take a charge of up to $5.5 billion in the first quarter due to a new restriction on exports of its H20 chips to China. Those chips are less powerful versions of its popular artificial intelligence (AI) accelerators, and the policy is in keeping with increasingly tight restrictions on sending cutting-edge technology to China.
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The U.S. has pressured a number of other companies to restrict high-tech exports to China, including EUV lithography machine maker ASML. AMD also took a smaller $800 million write-down on the export policy impacting the H20 chip.
However, these decisions have second-order effects, and one of them is that it’s likely to make China invest more in AI chip technology, much like those restrictions helped lead to the development of DeepSeek’s low-cost AI chatbot.
One of the Chinese stocks that could take advantage of the restrictions on chip imports is Xiaomi (OTC: XIACF), one of China’s most diversified tech companies. Xiaomi makes smartphones, computers, electric cars, and other consumer electronics. It also makes money from advertising, online gaming, fintech, and chip design, which is one of its most promising growth opportunities.
Image source: Getty Images.
The opportunity for Xiaomi
Xiaomi, which generated about $50 billion in revenue last year and has a market cap of $144 billion, has recently gotten into chip design, working on developing its own 3nm system-on-chips (SoCs) in-house for its phones and other devices. This would be China’s first 3nm SoC, and it intends to begin production this year.
Xiaomi is also making investments in AI, including building a 10,000 GPU cluster to develop AI models.
The company has shown it has the ability to innovate quickly, as it released an electric car last year after just three years of development, and it has already sold 135,000 vehicles. AI chips would also be a good fit for its burgeoning auto business, especially if the company is working on an autonomous vehicle.
The chip restrictions on exports from China are likely to expand as the trade war heats up, opening up more opportunities for Xiaomi and its peers, meaning there is more than $5.5 billion up for grabs here as American semiconductor companies like Nvidia are forced to retreat from the market.
Is Xiaomi a buy?
After years of underperforming the market, Xiaomi has surged in recent months, jumping 157% over the last year, even after pulling back since the trade war erupted a month ago.
Those gains were largely a response to the success of its EV sedan, the Xiaomi SU7, and its prospects in the industry with future vehicles, including the new YU7 SUV, as well as plans to export those vehicles. The company also stepped up its investments in the new technology, raising $5.5 billion in a secondary stock offering.
Xiaomi continues to deliver strong growth, with revenue up 35% to $50 billion last year, while adjusted net income jumped 41% to $3.7 billion.
The company has given a roadmap of where it’s going in technology, saying that it aims to invest in foundational core technologies, including integrating cutting-edge AI technology into its products and operations.
The U.S. government’s policy is effectively a protectionist measure for Chinese tech companies. While it might weaken China’s overall competitiveness in AI and tech infrastructure, it also creates a large opening for a Chinese company to take that business. Xiaomi might be the direct winner, but it also looks poised to benefit from those restrictions and the potential backlash toward American companies in China, including potentially against Apple in smartphones or Tesla in EVs, two of its direct competitors.
Xiaomi may not be on the radar for most U.S. investors, but if you’re looking for an alternative to stocks like Nvidia and want exposure to the rapidly evolving Chinese AI and tech sectors, Xiaomi looks like a good choice.
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Jeremy Bowman has positions in ASML, Advanced Micro Devices, and Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Nvidia, and Tesla. The Motley Fool recommends Xiaomi. The Motley Fool has a disclosure policy.