AMD: Better Positioned Than Nvidia To Face Tariffs As AI Becomes Commodity

The global AI semiconductor market is entering a pivotal phase, where tariffs and supply chain strategies are reshaping competitive dynamics. While nvidia remains the undisputed leader in AI accelerators, AMD’s under-the-radar supply chain reconfigurations and tariff mitigation tactics position it to outperform in the long run, especially as AI infrastructure transitions from specialized hardware to commoditized solutions.

AMD’s Tariff Shield: CPUs and Near-Shoring

AMD’s strength lies in its strategic use of exemptions under the U.S.-Mexico-Canada Agreement (USMCA) and the Trump administration’s tariff carve-outs. Standalone CPUs, critical for AI-driven servers and workstations, are exempt from the 2025 “Liberation Day” tariffs under Annex II of the executive order. This exemption ensures AMD’s CPU shipments—key components in data center infrastructure—enter the U.S. tariff-free, even when sourced from non-USMCA regions like Taiwan or China.

Meanwhile, AMD’s server partners—Hewlett Packard Enterprise (HPE), Dell, and Lenovo—have shifted production of AMD-based systems to Mexico. By adhering to USMCA’s “rules of origin,” servers assembled in Mexico qualify for 0% tariffs when exported to the U.S., avoiding the 24–32% levies on imports from Asia. This near-shoring strategy shields AMD’s server business from cost pressures while Nvidia grapples with higher exposure on GPU components.

Nvidia’s Supply Chain Vulnerabilities

Nvidia’s dominance in AI GPUs (83% market share) is tempered by structural risks. While it leverages Mexico-based assembly partners like Foxconn to finalize servers (e.g., GB200 racks), its GPU manufacturing in Taiwan remains exposed to the 32% tariff unless fully integrated into USMCA-compliant supply chains. For example, optical modules and interconnects sourced from China or Taiwan could face price hikes of 25–40%, squeezing margins.

Moreover, the shift toward custom AI chips (e.g., Microsoft’s Zeus, Amazon’s Inferentia) reduces reliance on off-the-shelf GPUs, denting Nvidia’s growth prospects. AMD, by contrast, benefits from a CPU-centric model that aligns with the trend toward standardized, cost-effective infrastructure in a commoditizing market.

AI Commoditization Favors AMD’s CPU-Driven Play

As AI infrastructure matures, cost efficiency and scalability will trump specialized hardware. AMD’s AI-optimized CPUs—such as the Ryzen 7040 Series with built-in AI engines—offer a lower-cost alternative to GPU-centric systems. This is critical in a market where hyperscalers like Meta and Alphabet are prioritizing energy-efficient, CPU-driven solutions for non-peak AI workloads.

AMD’s near-shoring also aligns with the Biden administration’s push for domestic semiconductor manufacturing. The CHIPS Act incentivizes U.S.-based production, and AMD’s partnerships with Mexico (a USMCA ally) position it to capitalize on subsidies and avoid geopolitical friction.

Risks and Conclusion

AMD’s path is not without hurdles. Its GPU packaging in Malaysia faces tariffs on U.S. sales, and it trails Nvidia in AI-specific interconnect technologies (e.g., NVLink). However, its CPU exemptions and supply chain agility create a buffer against rising costs. Meanwhile, Nvidia’s reliance on Taiwan and China leaves it vulnerable to supply chain disruptions and retaliatory tariffs.

The data underscores AMD’s resilience: its Q4 2024 net income is projected to rise 61.4% to $1.08B, while Nvidia’s stock fell 18% in 2024 amid tariff and competitive pressures. As AI infrastructure matures into a commodity market, AMD’s focus on CPUs and USMCA-compliant supply chains will likely cement its position as the better long-term investment in a tariff-ridden landscape.

In conclusion, AMD’s strategic foresight in tariff mitigation and its alignment with commoditization trends make it a safer bet for investors navigating the AI semiconductor storm. While Nvidia’s GPUs remain king today, AMD’s structural advantages could redefine the market by 2025.