WSJ What’s News - Microsoft Urges Trump to Loosen Export Rules on AI Chips

Episode Date: February 27, 2025

A.M. Edition for Feb. 27. Microsoft is pushing the Trump administration to ease proposed export curbs on a group of U.S. allies, warning they could turn to China to get the tech infrastructure they need. Plus, HSBC analyst Frank Lee breaks down Nvidia’s latest earnings. And the U.S. looks at importing eggs to control rocketing prices as the USDA forecasts costs could keep climbing through 2025. Luke Vargas hosts. Sign up for WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Want to own part of the company that makes your favorite burger? Now you can. With partial shares from TD Direct Investing, you can own less than one full share, so expensive stocks are within reach. Learn more at td.com slash partial shares. TD, ready for you. Microsoft urges President Trump to ease limits on chip exports, warning they could push allies into China's

arms. Plus, we'll crunch the numbers on Nvidia's latest earnings and explain what to watch next. If you look at the China market, that body language seems to have become a lot more positive since DeepSeat came out. And in fact, it's creating some short-term upside to Nvidia as well because you've seen a very strong pickup in the H20 chip that goes into China for Nvidia. And the U.S. looks at importing eggs to control rocketing prices.

It's Thursday, February 27th. I'm Luke Vargas for The Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Chief Justice John Roberts overnight temporarily halted a lower court requirement that the Trump administration resume nearly two billion dollars in foreign aid payments, marking the Supreme Court's first substantive action since the administration began its efforts to remake the federal government. That order, however, doesn't resolve the underlying dispute over whether the administration

can unilaterally nullify appropriations approved by Congress. Aid organizations have until Friday to file a response to the order, suggesting it will remain in place at least into next week. Well Roberts's order comes amid newly revealed Trump administration plans to eliminate the vast majority of US humanitarian assistance and overseas development aid. According to an internal memo and court filing seen by the Associated Press, more than 90 percent of the U.S. Agency for International Development's foreign aid contracts and some $60 billion in overall U.S. assistance is on the chopping block.

Separately, President Trump signed an executive order yesterday that requires all federal agencies to draw up plans to review existing contracts, freeze workers' credit cards, and cut staff beyond layoffs of probationary and diversity-focused workers. President Trump is revoking a Biden-era license allowing Chevron to produce oil in Venezuela, saying strongman Nicolas Maduro has failed to take in deported migrants and to make democratic reforms. The announcement comes less than a month after the Trump administration struck a deal with

Maduro to restart deportation flights to the country, a pact many regional observers thought meant the president would allow the oil to keep flowing. Trump said Chevron's license will be terminated as of March 1, requiring the company to wind down its Venezuelan operations within months. A Chevron spokesman said the company does business in Venezuela in compliance with all laws and regulations, including U.S. sanctions. And the U.S. government says it's got a plan to address the spread of bird flu and lower the price of eggs.

That plan will help poultry farmers with biosecurity measures and increase support to those who've lost their flocks. The administration didn't approve the use of an avian flu vaccine, but said it would keep studying them. To lower egg prices, Agriculture Secretary Brooke Rollins said the administration would consider rolling back certain state regulations like a California law establishing minimum space requirements for hens, and she told the journal the U.S. would look at scaling up overseas egg imports. We're talking to three or four countries

right now about getting between 70 and 100 million eggs into the country In the next month or two which of course will help with supply and demand However imports including from countries like Turkey may do little to stem surging prices The USDA is now forecasting a more than 41 percent increase in the cost of eggs this year up from an estimate of 20 percent Just last month. Coming up, HSBC's Frankly joins us to break down NVIDIA's latest quarterly results as the chipmaker's earnings and outlook beat expectations. That and other news moving markets after the break. Chipmaker NVIDIA yesterday reported a sharp rise in its sales and profit for the fourth

quarter, the latest in a string of bumper earnings results for the company. But were those results enough to shake off some jitters about the outlook for the AI boom? Frank Li is the global head of tech hardware and semiconductor research at HSBC. And he joins me now this morning from Hong Kong. Frank, NVIDIA's shares are trading around $130. You have $175 price target on this company. What were your reactions to the earnings update we got last night? I think if you've seen the share price reaction, it's been a little underwhelming. It looks like the numbers are strong. they're solid, the fundamentals are there.

Demand has not softened. But I think the key issue is that it was such a big earnings surprise for most a year and a half. And that was because the constant changes in the roadmap gave people confidence to take their numbers up again, including analysts like myself. The last two quarters, they haven't really been able to do that. And I think part of that reason is pricing power. The first year and a half of this AI, the real math,

they were seeing significant increases in their pricing power almost every six months. The last peak was mid last year. Since then we haven't really seen anything new come through. Let's talk about Nvidia's new Blackwell AI chips, its latest generation product. In this just concluded first quarter of shipping those chips at volume, video reported sales of $11 billion.

I'm curious, how does that stack up against expectations? Yeah. So I think this is a great question. The blackwell revenue that came out today that with a report in the fourth quarter, 11 billion was significantly higher than our estimate. And I think most analysts was somewhere around five to 6 billion. But I think what the confusion or at least the head scratching is that when you look at their current April quarter guidance of 43 billion, that's a net addition of about four billion.

So I think that begs the question that some of their existing line, especially the hopper is going to start to come off. Frank, are those older chip lineups being retired or just falling out of favor? It's the product transition, right? And so while there's gonna benefit from Blackwell, the hopper's gonna drop off. So your net addition isn't maybe quite as much as people had hoped.

The other issue is that one of the big reasons people were quite excited last year was that they had pushed this new change or this new model of doing the entire downstream rack. So you would bundle something like 72 GPUs together. And that increased a lot of content growth. But the progress of this rack architecture has generally been a little bit slower than expected. And so I think that is still something that we need to continue to see over the next couple of months.

Tell us about how Nvidia's offerings match up with the capital expenditures we've been seeing from the hyperscalers of late. I mean, overall, top line spending by the biggest tech companies in the world on AI data centers and chips seems really strong. And yet it's, I guess, the kind of spending they're doing and whether it persists. That is a question of paramount importance to Nvidia. The spending on the hyperscalers always been something that the market has been somewhat worried about since the very beginning of the AI story. The first year for NVIDIA, there was constant questions like, can the hyperscalers keep this up? And so far the answer is yes. When DeepSeq first came out about a month ago, one of the biggest worries was that this is going to change the AI capex trajectory, especially for the hyperscalers.

Well, within a couple of weeks, the answer was clear. It was that it was not going to change the spending in the near term. In fact, most of the hyperscalers raised their CapEx budgets for this year quite a bit. Now, there still is a longer term question of does it change the long term trajectory? We need to continue to see that. But DeepSeek has also created something interesting is that it's boosted the confidence, especially in the China market. So if you look at the Chinese internet players, for the last couple years, whenever you ask them about, what's their AI strategy to get around the chip bands,

there was always this little bit of hesitation. But that body language seems to have become a lot more positive since DeepSeq came out, with a sense that they don't need to use the most high-end chips now to have an AI model. And in fact, it's creating some short-term upside to Nvidia as well, because along with the DeepSeq introduction,

you've seen a very strong pickup in the H20 chip that goes into China for Nvidia. One of the other trends that have emerged in the last six months has been the impact of the ASIC. Actually, Frank, just explain that business for us, because I don't think we've talked about it here on the podcast. So basically, besides the GPU chip that everybody's using today from Nvidia,

a lot of the hyperscalers like Google or Amazon, they have their own chip. It's called an ASIC, an Application Specific IC. It's their own IP or they have control of that. And they work with other chip companies such as Broadcom or Marvell to develop that chip. So there's this concern that over time, are they going to be looking to ramp their own chip? So far this year, that has not impacted NVIDIA's trajectory or growth. But it is another one of those variables that I think people look at that could be a long-term competition. You mentioned earlier that really since the start of the big spending boom

by the hyperscalers on AI servers and chips that there's been a concern, the good times were going to end. More recently, we have seen some reports from analysts at TD Cowan that companies like Microsoft might be trimming back their data center expansions. Curious to get your take on that. Is it something Nvidia investors, really anyone investing in AI chips right now should be aware of? Yeah, that's a great question. I think if you look at Nvidia itself, they feel very comfortable with the near-term demand.

But if you see what Jensen Huan has been talking about since beginning this year, he's already started to talk about other narratives, such as the auto business that needs AI, such as the robotics side, where AI, such as the robotic side where there's going to be AI demand. The question though is that while those are potentially very interesting narratives and TAMs, how significant is that going to be in the near term to compensate if the spending on hyperscaler comes off? So I think that's the bigger question that investors are trying to figure out.

Frankly is the global head of tech hardware and semiconductor research at HSBC. Frank, thank you so much for joining us on What's News. Okay, thanks Luke. Well, speaking of chips, we are exclusively reporting that Microsoft is pushing the Trump administration to loosen and simplify export restrictions on cutting-edge AI chips. In a blog post set to be published today, Microsoft will call for the White House to relax the limits on chips that can be used in data centers for training AI models so that they no longer apply to a group of US allies including India, Switzerland, and Israel. That is according

to company officials who say Microsoft believes that allies who have limited access to American chips under the administration's proposed new rules will turn to China to get tech infrastructure they need. According to people familiar with the matter, Trump administration officials are weighing steps to strengthen the restrictions while simplifying the export control rules. And speaking of China's efforts to undercut the US's dominance not just at the cutting edge of technology but on the broader world stage, we've been working on a special series about Beijing's trillion-dollar infrastructure program and how it's helping Xi Jinping

to rival the US. You can find the first episode of Building Influence on the What's News feed and the next one drops on Sunday. And in market news today, European shares opened lower this morning and the euro has edged lower after President Trump said yesterday he's considering 25 percent tariffs on the European Union, putting a number on a threat that he's made before. Trump said the tariffs would be on quote, cars and all the things, end quote, but didn't specify when they would be imposed.

He did however say that many trade actions would come on April 2nd after the completion of a trade policy review. That comment also raised hopes that levies on Canada and Mexico could be further delayed, though a White House official said a current March 4th deadline remains in effect pending review. And that's it for What's News for this Thursday morning. Today's show was produced by Kate Bulevant and Daniel Bach with supervising producer Christina Rocca and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.