If you want to know, a ‘choke point’ is a critical point in a global supply chain or system that if disrupted can paralyze the entire world’s economy and technology.
The entire global economy now depends on three hidden ‘choke points’, and China is said to be planning to control two of them.
One of the most critical choke points is chips. Chips are a vital asset to almost all modern AI technologies, electric cars, iPhones, data centers and defense systems. Without chips, the modern world would be paralyzed.
Although Nvidia is a major AI chip manufacturer, the company only designs chips.
The actual manufacturing takes place in Taiwan, by a single company, TSMC. TSMC holds a near-monopoly in manufacturing the world’s most advanced chips. If TSMC is disrupted, the global technology industry will also be affected.
TSMC, on the other hand, relies on special lithography machines, which are only made by ASML from the Netherlands. No ASML machines mean no TSMC production, and no Nvidia chips. The global supply chain becomes very fragile.
More critically, the machines themselves depend on silicon, with nearly 80% of the world’s supply coming from China, a country that now threatens two of the three global choke points.
US officials have also claimed that China may try to take over Taiwan by 2027.
To mitigate the risk, the US is trying to build a TSMC factory in Arizona, but the project has been delayed by two years because American engineers have difficulty operating ASML’s complex machines.
In short, the world’s most advanced chip supply still depends on Taiwan, a tiny island at the center of geopolitical tensions. US mega-companies such as Apple, Tesla, Amazon, Meta, Microsoft, Alphabet and Nvidia, which make up 30% of the S&P 500, also rely on chips from Taiwan.
Warren Buffett is aware of this risk. With a record $381 billion in cash, he is holding off on investing now as he waits for the big opportunities that may arise from this global chip crisis.
