As the AI race rages on, China holds the aces. Nvidia cannot manufacture chips without the rare earths. I expect China to hold the Western AIs back by limiting their access to rare earth minerals. This could get spicy. Will the West resort to physical threats? It’s not unimaginable.
Via grok:
The most recent information available on the rare earth minerals deal between the United States and China indicates that a trade agreement was formalized in late June 2025 to address tensions over U.S. access to these critical materials. According to multiple sources, the deal involves China loosening export restrictions on rare earth minerals and magnets, which are vital for industries like automotive, aerospace, and defense, in exchange for the U.S. lifting certain export controls on goods such as semiconductor design software and jet engines. China’s Ministry of Commerce confirmed it would approve export applications for controlled items, while the U.S. would correspondingly cancel restrictive measures against China.
The agreement builds on a framework established after talks in London on June 9-10, 2025, following a May 2025 Geneva agreement that temporarily reduced tariffs and aimed to stabilize trade relations. China agreed to fast-track export license approvals for non-military U.S. manufacturers, with some licenses issued for six-month terms. However, concerns remain about the reliability of China’s commitments, as posts on X and some reports suggest Beijing has delayed or slow-walked export approvals, maintaining leverage over the U.S. due to its dominance in rare earth production and refining (approximately 70% of global mining and 90% of refining).
The deal does not fully resolve the issue of U.S. dependence on China for rare earths, particularly for military applications like samarium-based magnets, where China controls the entire global supply. The U.S. is investing in domestic supply chains, such as MP Materials’ facilities in California and Texas, but these are projected to produce only a fraction of China’s output by the end of 2025. Experts estimate it could take 10-15 years to develop a robust, China-independent supply chain.
In summary, as of July 1, 2025, the U.S.-China rare earth minerals deal is in place, with China agreeing to expedite exports and the U.S. easing some restrictions. However, the agreement is seen as a temporary measure, with ongoing uncertainties about China’s compliance and the U.S.’s long-term vulnerability due to its reliance on Chinese supplies.
Is Nvidia vulnerable?
Yes, Nvidia requires rare earth elements (REEs) and other critical minerals to manufacture its chips, particularly its GPUs, though the exact quantities and specific elements are often proprietary. Here's a breakdown based on available information:
Key Rare Earth Elements and Minerals Used:
Dysprosium: A critical REE used in ultrapure form for capacitors in advanced semiconductors, including Nvidia’s GPUs. China refines 99.9% of the world’s dysprosium, making it a significant dependency.
Gallium and Germanium: These are essential for semiconductor production, used in chip manufacturing processes and to enhance conductive properties. China produces 98% of global gallium and 67% of germanium, and export restrictions have impacted supply chains.
Neodymium, Praseodymium, and Others: Used in magnets for cooling fans and other components in GPU assemblies. Small amounts (less than a gram per card) are typically required.
Yttrium: Applied in phosphors for LED lighting and display technologies associated with GPUs.
Other Critical Minerals: Elements like tantalum, tungsten, and gold are used in transistors, capacitors, and wiring due to their conductivity and heat resistance.
Role in Manufacturing:
REEs and critical minerals are used to dope semiconductors, enhancing their electrical properties, or in manufacturing equipment like lithography machines.
Gold, copper, and silicon are primary materials in chip fabrication, with gold used in wiring and connections due to its conductivity, though minimized due to cost.
The production process is energy-intensive, often relying on fossil fuels, and involves complex supply chains with materials sourced globally, including from China.
Supply Chain Challenges:
China’s dominance in REE production (60% of global mining, 90% of refining) and recent export restrictions on gallium, germanium, and antimony pose risks for Nvidia, potentially increasing costs or causing delays.
The U.S. is seeking alternative sources (e.g., Japan, Belgium) and investing in domestic mining and recycling to reduce dependency, but these efforts are not yet sufficient to replace China’s supply.
Quantities:
Exact quantities of REEs in Nvidia’s chips are trade secrets, but they are typically used in trace amounts (e.g., milligrams to grams per chip or card). For example, neodymium in magnets is less than a gram per graphics card.
Substitutes and Alternatives:
Some manufacturers are exploring REE substitutes or recycling to mitigate supply risks, but alternatives like gallium-free processes are not yet scalable.
Nvidia’s reliance on these materials persists due to their unique properties, such as high heat resistance and conductivity.
In summary, Nvidia’s chip manufacturing depends on rare earths like dysprosium, gallium, and neodymium, among others, sourced primarily from China. While the amounts are small, supply chain vulnerabilities due to export restrictions could impact production costs and timelines. Efforts to diversify sources or develop substitutes are ongoing but face significant challenges.
The "Big Short" investor Michael Burry holds a significant short position in Nvidia, in the hedge fund Scion Asset Management. Burry is famously known for predicting the 2008 housing market crash. According to his latest 13F filing with the SEC, as of March 31, 2025, Scion held 900,000 put options on Nvidia, valued at approximately $97.5 million, representing nearly half of his portfolio. These put options are a bearish bet, profiting if Nvidia’s stock price declines by a set date. The exact strike price and expiration date of these options are not disclosed, and it’s unclear whether Burry still holds this position or has closed it for a profit. His move has drawn attention due to Nvidia’s strong performance, with its stock hitting record highs, driven by AI demand and eased trade restrictions.
