Shares of semiconductors giants Intel (INTC -2.29%) and Broadcom (AVGO 20.43%) were eking out small gains in early afternoon trading Monday, up 2% and 1.8%, respectively. Meanwhile, tiny rival Indie Semiconductor (INDI -1.80%), a specialist in chips designed for use in automobiles, had raced ahead by 19.8% after pre-announcing third-quarter revenue numbers that pleased Wall Street mightily.
Why is Indie Semiconductor outperforming Intel and Broadcom?
This is no huge surprise, given the news Indie Semiconductor announced Monday. According to the company, its Q3 revenue will be above its own guidance, above $60 million -- and therefore, almost certainly above analysts' consensus estimate of $60.02 million.
Unless Indie "beats" expectations by no more than a rounding error, this quarter could be a blowout. Granted, management hasn't said by exactly how much it will exceed them, and even acted to temper investor enthusiasm by saying revenue will be only slightly ahead of consensus estimates.
But even if that's all the company manages, it will equate to better than 100% year-over-year revenue growth for the company, and make it easier for Indie to beat expectations on earnings, where the analysts were looking for a 20% reduction in losses per share.
So bully for Indie. But is this tiny company's good news also the reason that Intel and Broadcom stocks are moving higher, even if to lesser extents? Probably not. Instead, Intel and Broadcom seem to be reacting positively to bad news for an even bigger rival of theirs -- Nvidia (NVDA -2.52%).
As Reuters reported last night, Nvidia -- which dominates the market for artificial intelligence (AI) chips that Intel and Broadcom would like to be more active in -- is at risk of losing some sales as the Biden administration tightens restrictions on the export of AI chips to China.
According to the article, the U.S. government is cracking down on AI chip exports to China, which recently alarmed U.S. investors when Chinese tech giant Huawei unveiled a Mate 60 Pro smartphone with a 5G chip on par with what U.S. semiconductor companies can produce. Reuters notes that prior to this development, Nvidia had begun shipping to China H800 AI chips that were similar in capability to the company's marquee H100 chip -- but that were not restricted from being exported there like the H100 is.
Nvidia has been making use of a work-around, creating chips "that fall just under current technical parameters" of the ban, and supplying those to China rather than the currently restricted chips. In response, the Department of Commerce is preparing to tighten up the China export ban's parameters a bit, and "restrict certain advanced datacenter AI chips that are not currently captured."
How bad is this news for Nvidia -- and how good is it for Intel and Broadcom?
Now, Nvidia investors don't necessarily need to panic over this development -- and they aren't. While they are not up quite as much as Intel and Broadcom, Nvidia shares are slightly in the green Monday, up a fraction of a percent. As the company asserted back in June when rumors of the pending new restrictions apparently began to leak, even restrictions on shipments of the H800 AI chip and a related A800 chip would not have any material impact on its earnings.
Still, any move by the government that threatens to slow Nvidia's roll -- even a little -- probably sounds like good news to investors in Intel and Broadcom. And it doesn't hurt that the new regulations apparently won't target the export of chips designed more for use in laptops rather than in AI data centers. This is especially good news for Intel, which according to data from S&P Global Market Intelligence gets about 50% more revenue from its client computing business than it does from data centers and AI.
For these two companies, which are still playing catch-up with Nvidia in the AI space, every little bit of good news helps.