Nvidia's China Orders Go Off The Charts — Putting Semiconductor ETFs Back In Policy Crossfire
Nvidia Corp.'s (NASDAQ:NVDA) latest effort to meet rising demand from Chinese tech companies is highlighting the risks within semiconductor ETFs. China’s role is shifting from a background factor to a key player in chip production choices.
According to anonymous sources cited by Reuters, Chinese tech firms have ordered over 2 million of Nvidia's H200 artificial intelligence chips for delivery in 2026. This is far more than Nvidia’s current stock of about 700,000 units. In response, Nvidia has asked Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) to increase production of the Hopper-based H200. At the same time, it is speeding up the development of its newer Blackwell and upcoming Rubin chips.
Regulatory Hurdles: U.S. Export Fees and China Approval
This shift in production is important for ETFs. Semiconductor funds that invest heavily in Nvidia and TSMC now have a clearer link between their performance and regulatory decisions in China. The country has not yet approved imports of the H200. Recently, the U.S. allowed exports of the chip to China but imposed a 25% fee. China is still deciding whether and how to allow shipments.
How Semiconductor ETFs (SOXX, SMH) Are Exposed
Major funds such as the iShares Semiconductor ETF (NASDAQ:SOXX) and the VanEck Semiconductor ETF (NASDAQ:SMH) hold significant positions in both Nvidia and TSMC, making them particularly vulnerable to any delays or restrictions related to Chinese approvals. Even more diversified ETFs like the SPDR S&P Semiconductor ETF (NYSE:XSD) could be affected, as many of their holdings depend on global AI demand and shared manufacturing capabilities.
Supply Chain Strain: Older Chips Squeeze Capacity
The growing focus on the H200 also highlights ongoing supply chain issues for AI chips. Nvidia's choice to resume production of an older chip (released mid-2024) shows that demand from China is strong enough to impact capacity allocation at TSMC, a crucial bottleneck in the semiconductor industry. For ETF investors, this concentration risk increases when production priorities shift to meet demand in one region.
AI-focused ETFs, such as the Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ), also have indirect exposure through their semiconductor investments. This connects broader AI investment themes to the same trade and policy uncertainties.
Investor Takeaway: Geopolitical Risks Are Now Front and Center
For investors, the key takeaway is that semiconductor ETFs are not suddenly high-risk. Instead, the nature of the risk is evolving. What used to be a background geopolitical issue has become a more immediate concern as Nvidia's China-driven orders start to influence supply decisions that affect the entire ETF landscape.
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