Nvidia’s Asian suppliers sink on data center oversupply doubts

Nvidia’s Asian Suppliers Sink on Data Center Oversupply Doubts

In a significant ripple effect across the global tech landscape, shares of Nvidia’s key Asian suppliers plummeted on March 26, 2025, following growing concerns over a potential oversupply in data center infrastructure and waning demand for artificial intelligence (AI) hardware. The news comes on the heels of a nearly 6% drop in Nvidia’s stock overnight in the U.S., triggered by reports that Microsoft, a major AI investor, has begun canceling data center leases in both the U.S. and Europe. This development has cast a shadow over the once-booming AI infrastructure market, sending shockwaves through Nvidia’s supply chain in Asia.

A Regional Impact

Nvidia, a leading force in the AI chip market, relies heavily on a network of Asian suppliers to produce its cutting-edge processors and related components. On Thursday, these suppliers saw sharp declines in their stock prices, reflecting investor unease. Taiwan Semiconductor Manufacturing Company (TSMC), Nvidia’s primary chip fabricator, dropped approximately 2% in Taipei trading. Hon Hai Precision Industry Co. Ltd., better known as Foxconn, shed over 3%, while South Korea’s SK Hynix, a key supplier of high-bandwidth memory (HBM) chips critical for AI workloads, fell by about 3%. Japan’s Advantest Corp., which provides chip-testing equipment, experienced the steepest decline, sliding more than 7%.

The synchronized downturn across these major players underscores the interconnected nature of Nvidia’s supply chain and the broader AI ecosystem. These companies have been riding the wave of Nvidia’s explosive growth in recent years, fueled by insatiable demand for AI-driven computing power. However, the latest market signals suggest that this growth may be hitting a ceiling—or at least a temporary pause.

The Microsoft Factor

The catalyst for this market reaction appears to be a note from TD Cowen, a financial services firm, which revealed that Microsoft has walked away from over two gigawatts of data center capacity in the U.S. and Europe. This move has raised eyebrows, as Microsoft has been one of the most aggressive adopters of AI technologies, leveraging Nvidia’s chips to power its Azure cloud platform and support its partnership with OpenAI. The cancellation of these leases has sparked speculation that the tech giant may be reevaluating its infrastructure needs, potentially signaling an oversupply of data center capacity in key markets.

This development comes at a time when the AI hype cycle is under scrutiny. While Nvidia’s chips have been the backbone of the generative AI revolution—powering everything from ChatGPT to advanced machine learning models—some analysts are questioning whether the market has overestimated the pace of AI adoption. If major players like Microsoft are scaling back, it could indicate that the demand for Nvidia’s high-end GPUs, and by extension the output of its Asian suppliers, may not be as robust as previously anticipated.

Oversupply or Strategic Shift?

The notion of a data center oversupply is not entirely new. The rapid buildout of AI infrastructure over the past few years has been driven by a gold-rush mentality, with tech giants and startups alike racing to secure capacity for training and deploying AI models. However, the economics of this expansion are complex. Building and maintaining data centers is a costly endeavor, and an oversupply could lead to underutilized facilities, squeezing margins for both operators and their suppliers.

Yet, there’s another angle to consider: Microsoft’s pullback might reflect a strategic pivot rather than a blanket retreat from AI. The company could be redirecting resources toward more efficient or specialized infrastructure, potentially in regions outside the U.S. and Europe. Alternatively, advancements in AI model efficiency—such as those demonstrated by Chinese startup DeepSeek, which claims to rival Western models at a fraction of the cost—could be reducing the need for raw computing power, thereby dampening demand for Nvidia’s top-tier chips.

Asian Suppliers Caught in the Crossfire

For Nvidia’s Asian suppliers, the stakes are high. TSMC, for instance, has invested heavily in advanced manufacturing processes to keep up with Nvidia’s demand for next-generation chips like the Blackwell series. SK Hynix, meanwhile, has positioned itself as a leader in HBM production, a market segment that has seen explosive growth thanks to AI workloads. Any slowdown in Nvidia’s orders could disrupt these companies’ growth trajectories, forcing them to seek new customers or diversify their offerings.

The declines in stock prices also reflect broader market sentiment. Investors are growing wary of the AI bubble narrative, with some questioning whether the sector’s meteoric rise has outpaced real-world adoption. Nvidia’s Asian suppliers, deeply tied to the company’s fortunes, are particularly vulnerable to these shifts in perception.

Looking Ahead

Despite the immediate fallout, it’s worth noting that not all signals point to doom and gloom. SK Hynix, for example, recently reported record quarterly profits and dismissed concerns about an AI chip oversupply, citing strong demand for its HBM chips that is expected to persist into 2025. Nvidia itself has maintained an optimistic outlook, with CEO Jensen Huang touting “amazing” demand for its Blackwell AI supercomputers, which generated billions in sales in their first quarter of production.

Still, the current turbulence highlights the fragility of the AI supply chain and its susceptibility to shifts in demand. For Nvidia’s Asian suppliers, the coming months will be critical. If the data center oversupply fears prove overblown—or if new demand drivers emerge—they could rebound quickly. But if the market has indeed overestimated AI’s near-term growth, these companies may face a prolonged period of adjustment.

As of today, March 26, 2025, the tech world is watching closely. Nvidia’s dominance in AI has been a boon for its Asian partners, but the latest developments serve as a reminder that even the hottest markets can cool off. Whether this is a temporary dip or the start of a broader correction remains to be seen—but for now, the doubts are sinking stocks across the region.