Jefferies sees potential US ban on DS for consumers

On Tuesday, Jefferies analysts suggested that a ban on DS by the United States is a probable outcome, particularly for consumer use. The firm’s analysts indicated that such a move would be driven by national security and cybersecurity concerns raised by experts regarding the use of DS technology. They believe that to maintain global AI supremacy, the US might prohibit DS for consumers, though American AI developers might not face the same restrictions. This development could further strengthen NVIDIA (NASDAQ:NVDA)’s position as a prominent player in the Semiconductors & Semiconductor Equipment industry, with the company currently maintaining impressive gross profit margins of 76%. According to InvestingPro, NVIDIA has over 20 key insights available, including detailed analysis of its market position and growth potential.

If the ban were enacted, US AI developers could potentially self-host DS models to bypass security risks, leveraging the technology’s cost-efficiency. Jefferies noted that even without the ability to host DS, US firms could replicate its technology to create affordable AI solutions. This development would likely shift the focus of US AI companies towards improving model efficiency and reducing costs. OpenAI’s recent release of the o3-mini model, which is less expensive than its predecessor but still costlier than DS R1, exemplifies this trend.

The analysts at Jefferies also outlined two scenarios regarding US-China relations and technology. In their bear case, they foresee the US restricting GPU sales to China, including those for consumer use, as part of a strict AI Diffusion policy enforcement. This could severely limit AI growth in China across various sectors. For market leader NVIDIA, which has achieved remarkable revenue growth of 152% over the last twelve months and commands a market capitalization of $2.91 trillion, such restrictions could impact future performance. InvestingPro’s comprehensive analysis, including Fair Value estimates and growth projections, suggests the stock is currently trading near its Fair Value. However, they believe that in such a scenario, Semiconductor Manufacturing International Corporation (SMIC) would become even more pivotal, and GDS Holdings (NASDAQ:GDS) would be better positioned than VNET due to its ability to grow outside China with US customers.

Conversely, the bull case presented by Jefferies assumes no additional chip bans and the abandonment of the AI Diffusion policy. Under these circumstances, China’s AI industry could potentially accelerate its growth, benefiting both GDS and VNET. With NVIDIA’s strong financial health score of 3.54 (rated as GREAT by InvestingPro) and its robust cash flow position, the company appears well-positioned to capitalize on any market scenario. Nonetheless, the expansion of 7nm foundry capacity in China would remain a long-term necessity, and the growth of edge AI could potentially outpace current projections.

In other recent news, CoreWeave, a cloud service provider, has launched NVIDIA GB200 NVL72-based instances to meet the increasing demand for massive compute and optimized software to scale AI reasoning models and agents. Simultaneously, ARK’s Big Ideas 2025 report anticipates AI agents will play a significant role in the future of digital applications, predicting a shift in human-computer interaction.

Meanwhile, Intel Corporation (NASDAQ:INTC) might face a formal antitrust investigation by Chinese regulators, according to a report from the Financial Times. This is part of a broader revival of antitrust investigations by China’s State Administration for Market Regulation, including inquiries into major US tech firms such as Google (NASDAQ:GOOGL) and NVIDIA.

In relation to NVIDIA, DA Davidson has reiterated its Neutral rating on the company’s shares, maintaining a price target of $135.00. The firm’s analyst, Gil Luria, emphasized the impact of recent advancements in AI, particularly the introduction of DeepSeek.

Finally, US President Donald Trump is scheduled to meet with NVIDIA’s Chief Executive, Jensen Huang, following the release of a cost-effective model by Chinese AI firm DeepSeek that utilizes old NVIDIA GPUs. These are the recent developments that investors should be aware of.

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