What the era of ‘sovereign AI’ means for chip makers
As Nvidia and others strike deals with sovereign nations, their business will become politicized as never before.
Nvidia is often thought of as the pre-eminent arms dealer for the artificial-intelligence age. Much is riding on the chip maker’s not actually being treated like one.
Nvidia and rivals including Broadcom, Marvell and Advanced Micro Devices design the key components that supply the massive computing horsepower required for AI services. They are all recipients of the hundreds of billions of dollars that megacap tech companies based in the U.S. are investing to build those services.
Other countries want in on the action—in a big way. Saudi Arabia recently struck a deal to buy large amounts of Nvidia’s AI chips for local infrastructure projects, and Nvidia has described India as a major customer. In addition, Nvidia was named Thursday as a key partner in an OpenAI-led data-center project in the United Arab Emirates.
“AI is going to be part of a national infrastructure the way telco is part of a national infrastructure," Nvidia Chief Executive Jensen Huang told a meeting of analysts in January. “Every country has their own telcos."
The flip side is that AI chips are now a highly politicized business, figuring prominently in the U.S.-China trade war, and likely many future conflicts to come. For Nvidia and its competitors, that can be a blessing and a curse.
The Trump administration has sharply restricted the ability of U.S. chip makers to sell their wares in China and some other countries. Future sales outside the U.S. could be linked closely to trade deals with individual countries. This new political reality for AI chip companies was highlighted as last week’s deals were timed to coincide with President Trump’s swing through the Middle East. Huang, the CEO who is now a global superstar, even ditched his trademark leather jacket and wore a suit for the occasion.
Huang has previously described the concept of countries’ investing directly in artificial intelligence as “sovereign AI"—and it is an important element underpinning Nvidia’s growth ambitions. Bank of America analyst Vivek Arya estimates that the sovereign AI market could reach $50 billion annually in the long term, or 10% to 15% of the “global AI infrastructure opportunity."
Nvidia has more than doubled its annual revenue in each of the past two fiscal years, and it is expected by Wall Street to keep growing at a strong double-digit-percentage pace for the next three years. That would take the company’s annual sales well past the $300 billion mark, a level no chip company has ever come close to achieving.
Hopes are high for Nvidia’s AI competitors as well. Advanced Micro Devices, also known as AMD, is seen increasing annual revenue by double-digit percentages consecutively for the next five years, according to consensus estimates from Visible Alpha.
That would be a feat the 56-year-old chip maker hasn’t managed since at least 1990, which is as far back as data measured by S&P Global Market Intelligence goes. AMD scored its own deal in the desert last week, landing a $10 billion agreement with Saudi Arabia to supply AI data-center components for the country’s Humain venture.
Sovereign AI projects can help chip companies including Nvidia and AMD reduce their reliance on the deep pockets of such companies as Microsoft, Amazon.com, Alphabet’s Google and Meta Platforms. Capital spending by those companies has been on a tear as they race to build up AI capabilities, but historically such spending has been lumpy and volatile. It might depend, for instance, on the availability of real estate or electricity, as well as the near-term business trends of those companies.
“Sovereign AI nicely complements commercial cloud investments," wrote BofA’s Arya in a recent report. Stacy Rasgon of Bernstein was relatively blunt. “For investors worried about AI capex sustainability, we now have another deep-pocketed customer willing and capable to spend large amounts of money on a clearly strategic push as Saudi Arabia attempts to position itself as a regional and global AI hub," he wrote.
Investors like the idea. Nvidia and Broadcom have seen their stock prices jump by more than a third over the past month, while AMD’s shares are up around 30%.
Sovereign AI projects will bring their own kind of turbulence. For one thing, project values announced at political events might prove to be exaggerated and won’t always materialize as revenue. What is more, any foreign entity buying up advanced chips must make sure it doesn’t run afoul of the U.S.’s efforts to keep AI components out of the hands of China and other adversaries.
The Trump administration scrapped the so-called AI diffusion rule, which would have placed limits on AI chips sales even to friendly countries. That was a notable victory for Nvidia and its peers, and it triggered a rally in their shares. But the administration is reportedly considering new steps that could link AI chip sales to trade deals with individual countries.
More broadly, the rise of sovereign AI exposes chip companies to levels of geopolitical intrigue normally associated with defense contractors. That could produce lots of unpredictability for Nvidia and its peers.
For instance, Nvidia’s fiscal first-quarter report next week will include a $5.5 billion charge for chips it had designed for the Chinese market that were later banned for sale there by the U.S. government. Analysts are worried about how that will affect the company’s outlook for the remainder of the fiscal year, even with overall demand for AI chips still running strong.
Regardless, Nvidia’s market cap is back above $3 trillion, and now ahead of Apple’s. Investors are betting big that this arms dealer can stay above the fray.
Write to Dan Gallagher at dan.gallagher@wsj.com
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