Mexico's Semiconductor Revolution: A Plan Maestro for the AI Era

??? Mexico's Chip Gambit: Powering AI's Future

As global demand for AI chips surges, Mexico is positioning itself at the heart of a semiconductor revolution. This week, we're diving into the "Plan Maestro," a groundbreaking U.S.-Mexico collaboration reshaping the AI supply chain.

Our analysis uncovers the stakes: with AI projected to boost U.S. GDP by 21% by 2030, Mexico's $5.7 billion investment could transform it into a crucial player in the $1.2 trillion semiconductor industry. From reducing reliance on Asian producers to creating thousands of high-tech jobs, we explore how this megaproject could redefine North American tech dominance.

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Nido Indicators ????????

Auto Exports: 315,706 units on Sep 01, 2024 (??7.87% from Aug 01, 2024)

Consumer Confidence Indicator in Mexico: 47.60 points on Aug 01, 2024 (??1.06% from Jul 01, 2024)

Consumer Confidence Indicator in United States: 70.10 units on Sep 01, 2024 (??3.24% from Aug 01, 2024)

Federal Reserve Interest Rate: 5.00% on Sep 18, 2024 (??9.09% from Jul 31, 2024)

Bank of Mexico Interest Rate: 10.50% on Sep 26, 2024 (??2.33% from Aug 08, 2024)

USD-MXN Exchange Rate: 19.36 on Oct 08, 2024 (??3.08% from Sep 06, 2024)

S&P/BMV IPC: 52,039.87 points on Sep 30, 2024 (?? 903.82 points from Sep 8, 2024)

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In the Know with Nido: What we are reading

?? Foxconn Expands in Mexico to Boost AI Production

Foxconn, the world's largest contract electronics manufacturer known for assembling Apple’s iPhone, is building the world’s largest plant in Mexico to assemble Nvidia's GB200 superchips. This expansion aligns with the surge in artificial intelligence, with Foxconn assembling servers for AI processing and strengthening its partnership with Nvidia for the next-generation Blackwell platform. (Reforma)

?? Meta Launches AI Video Generator with Sound Integration

Meta introduces Meta Movie Gen, an AI tool that creates and edits videos with synchronized sound effects and music from text prompts. This launch follows OpenAI's more cautious approach with Sora. While the technology promises to revolutionize content creation, it raises concerns about disinformation and the future of digital artists.(The New York Times)

?? Amazon Shutters More Cashierless Go Stores

Amid High Costs Amazon has closed three Go convenience stores in New York, reducing its total to 17 across the U.S. While citing high lease expenses, the company remains committed to its Just Walk Out technology. Amazon continues to promote this innovative checkout solution for third-party retailers, highlighting its potential for future growth.(TechCrunch)

?? Apple Shares Slide as Analyst Questions AI-Driven Sales Expectations

Apple's stock fell over 1% after Jefferies downgraded it to "hold," citing concerns over inflated AI-related iPhone sales forecasts. The analyst predicts that meaningful AI enhancements won't arrive until 2026 or 2027, emphasizing the need for hardware upgrades to support advanced AI features.(Bloomberg)

?? A federal judge has mandated that Google must permit rival Android app stores, a significant victory for Epic Games in its antitrust battle. This decision, effective Nov. 1, could diminish Google's dominance in the app market and has already led to a 2% decline in Alphabet's stock.(Bloomberg)

?? Emerging Currencies Retreat as Strong US Jobs Data Dims Fed Rate Cut Hopes

Emerging-market currencies fell 0.5% after robust US job numbers tempered expectations for Federal Reserve rate cuts. While the Korean won and Eastern European currencies struggled, Latin American currencies like the Mexican peso performed well. Chinese equities surged due to stimulus, as investors remained cautious of rising oil prices and Middle East tensions. (Bloomberg)

??? Oil Prices Spike to $80 Amid Geopolitical Tensions

Brent crude oil has hit $80 per barrel, the highest level since August, fueled by rising Middle Eastern tensions and supply fears. Concerns over potential Israeli strikes on Iran's oil facilities and threats from Hurricane Milton complicate the market. With West Texas Intermediate at $77, volatility persists as investors navigate these uncertainties.(Bloomberg)

?? Bond Traders Brace for Economic Overdrive

After Jobs Surge A surprising payroll report reveals robust job growth, raising fears of a "no landing" economy where inflation persists despite ongoing expansion. As Treasury yields spike, investors are reevaluating their expectations for Federal Reserve interest rate cuts, with some anticipating a potential pause or increase to combat rising inflation. Strategies are shifting amid these economic uncertainties.(Bloomberg)

?? Starlink Surges in Mexico: Now a Leading Internet Provider

Elon Musk's Starlink has rapidly climbed the ranks in Mexico, achieving its first official revenue of 638 million pesos ($33 million) in Q2 2024. It now stands as the sixth-largest fixed internet provider in the country, capturing 4% of its global market share with over 160,000 access points.(El Economista)

?? US Venture Capital Thrives on AI Investments

Despite Fewer Deals In Q3 2023, US startups attracted $37.5 billion in venture capital, an 8% increase year-over-year, fueled by significant funding in AI. Notable investments went to Anduril, Safe Superintelligence, and Groq. However, deal volume dropped 17% to 2,794, with expectations of recovery as more deals are reported. (The Information)

?? Mixed Signals in Mexico's Labor Market as Unemployment Reaches Yearly High Mexico's unemployment rate rose to 3.0% in August, the highest in a year, with a total loss of 626,770 jobs, particularly in the service sector. However, the manufacturing sector saw a notable increase of 388,499 jobs, highlighting a complex labor landscape. (El Financiero)

In-depth with Nido: What we are thinking

As the global demand for AI chips skyrockets, Mexico is positioning itself as a critical player in the semiconductor supply chain. Moreso with the launch of the "Plan Maestro," a strategic collaboration between Mexico and the U.S. designed to boost Mexico’s semiconductor industry, ensuring both nations reduce their reliance on Asian producers in the midst of growing nearshoring trends (more on Xataka).

Over the past year, officials from both countries have coordinated a series of meetings to launch the "Plan Maestro". This ambitious project involves a broad public-private collaboration between organizations like Mexico’s Ministry of Economy, the U.S. Department of State, USAID, and major Mexican educational and research institutions (more on Gobierno de México). With AI becoming a key driver of growth—already adopted by more than 30% of companies across industries such as Tech and Consulting in 2023 (more on Statista)—the stakes are high. AI is projected to increase U.S. GDP output by 21% by 2030 (more on Statista), and its importance extends beyond economics into national security, with AI-powered military technology playing a pivotal role in countering eastern threats (more on the Department of Defense). This places semiconductors, the backbone of AI, in the spotlight.

AI’s supply chain, broadly speaking, consists of three main nodes: semiconductor manufacturers (like TSMC), hardware designers (like Nvidia), and model developers (like OpenAI). While the most advanced chip designers and model developers are based in the U.S., they heavily rely on TSMC in Taiwan for cutting-edge chip manufacturing. Taiwan’s dominance in this sector poses significant risks for the global supply chain, especially amid rising geopolitical tensions with China. TSMC controls around 60% of the global semiconductor market, making it irreplaceable in the short term (more on Forbes). The potential for China to seize control of Taiwan’s semiconductor production raises national security concerns for the U.S. In response, Washington has offered financial incentives worth $11 billion to encourage TSMC to expand operations in the U.S. and reduce dependency on Asia (more on Bloomberg).

Despite these incentives, the U.S. is doubling down on building a more robust semiconductor supply chain closer to home in order to immunize its tech sector and economy from geopolitical tensions (more on the US Department of State). That’s where Mexico comes in. Mexico offers several advantages, including its geographical proximity to the U.S., tariff-free access through the USMCA, and an established manufacturing sector. Mexico also boasts abundant natural resources, such as silicon, a key material in semiconductor production. Additionally, government tax incentives, infrastructure investments, and industrial park developments make the country an attractive partner for semiconductor expansion (more on Co-Production International). This combination of factors is what led to the creation of the "Plan Maestro".

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