AI chips are the new ‘coin of the realm’ as they grease the wheels of geopolitical negotiations, BofA says
- Analysts at Bank of America are bullish on chip stocks like Nvidia as mega-projects in the Middle East highlight long-term demand for AI computing. Also bolstering the case for the stocks is the emergence of AI chips as the new "coin of the realm," serving as currency in geopolitical talks.
AI chips, such as the graphics processing units that are critical to Nvidia's success, have become so important globally they are like a form of currency in geopolitical talks on trade, according to analysts at Bank of America.
That's as recent mega-deals point to continued demand for AI computing power. In a note on Tuesday, BofA estimated that Nvidia's and AMD's AI infrastructure projects with Humain, a subsidiary of the Saudi Arabia Public Investment Fund, would come out to $3 billion-$5 billion annually, or $15 billion-$20 billion over a multi-year period.
Humain will receive 18,000 cutting-edge Blackwell chips from Nvidia, while AMD, a close rival of Nvidia in AI accelerators, signed a $10 billion collaboration with Humain to provide 500 megawatts of AI compute capacity for its data centers.
Such "sovereign AI" deals could represent more than $50 billion annually in the overall $450 billion-$500 billion global AI infrastructure market opportunity globally, BofA said.
"Sovereign AI could also help address limited power availability for data centers in US, plus offset headwinds from restrictions on US companies shipping to China," analysts added.
Nvidia and AMD are poised to be the biggest winners from the Saudi project, according to BofA, which reiterated buy ratings on those stocks and hiked their prices targets to $160 from $150 and to $130 from $120, respectively.
Chip stocks Broadcom and Marvell Technology will also benefit as will optical connectivity provider Coherent, the note said, reiterating buy ratings on those too.
"Despite being more crowded we believe these vendors are exposed to the modest dependable/secular demand for AI deployments by well-funded: 1) hyperscale/cloud customers (CY25 capex now tracking +44% YoY vs. +7% YoY at same point last year), 2) Recent dissolution of restrictive AI diffusion rules, and 3) Important role played by AI chips as part of geopolitical negotiations around trade/tariffs (GPU as the new 'coin of the realm')," BofA said.
Indeed, Nvidia is seen as a bargaining chip in U.S.-China trade talks as both sides seek to lower barriers while also maintaining their own technological advantages.
Meanwhile, Humain’s deal with Nvidia not only represents the next steps in Trump’s efforts to court Mideast countries, but also elevates Nvidia’s role in global AI development. The thousands of semiconductor chips Humain will receive are Nvidia’s newest and most powerful, introduced only in March.
While U.S. AI hyperscalers like Alphabet and Amazon will remain a priority for Nvidia, Saudi Arabia will get preferential treatment over other countries, Wedbush managing director Dan Ives told Fortune's Sasha Rogelberg this past week.
“This puts them to the front of the line,” he said. “It’s a red-carpet rollout. It’s a region that ultimately could add a trillion dollars to the market opportunity for AI over the next decade.”
“With China still a tenuous situation, I think it’s a watershed moment,” he added.
This story was originally featured on Fortune.com