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Nearly a decade after announcing grand plans for 30-minute drone delivery of items up to 5 pounds, Amazon told CNBC it’s now completed just 100 deliveries in two small U.S. markets.

Compare that number with internal projections from January for 10,000 deliveries by the end of this year, according to a video address in early 2023. Days after Amazon set its target, a significant number of Prime Air workers were let go as part of the largest round of layoffs in company history

Now, Amazon’s 2023 goals have changed, the company said, pointing to regulatory hurdles put in place by the Federal Aviation Administration.

“While the FAA broadened Prime Air’s authority to conduct drone deliveries to include sites in California and Texas, the phased process for expanding our service areas is taking longer than we anticipated,” said Av Zammit, an Amazon spokesperson.

CNBC went to Lockeford, California, a 4,000-person town and one of the two U.S. markets where the company’s drone program is operating. Amazon said it started drone deliveries there in December, but there was no apparent aerial activity at the former concrete manufacturing warehouse that now serves as the unit’s local hub.

“I would love to see the drones flying around. I can’t wait,” said Ken Thomas, who co-owns a nearby deli that’s served lunch to some Amazon employees. “I haven’t seen any yet.”

Thomas added, “One guy said they had 14 customers signed up, which seems kind of low to me.”

Amazon said thousands of people “have expressed interest” in the program and that the company is “working with each one of them to make this a reality.”

Company employees previously told CNBC that the drones are only delivering to two homes in Lockeford, located next door to each other less than a mile from the warehouse. The employees asked to remain anonymous because they weren’t authorized to speak on the matter.

Main Street of Lockeford, California, on April 14, 2023. The 4,000-person town is one of two small markets where Amazon started gradual drone deliveries in December 2022.

Katie Tarasov

But where Amazon has stalled, other companies’ drone programs have seen greater traction, particularly those that started outside of the regulatory confines of the U.S.

CNBC visited Wing, a subsidiary of Google parent Alphabet, at a drone test facility in Hollister, California. At one point, there were 37 drones in the air at once making demo deliveries.

Wing CEO Adam Woodworth said it’s made 330,000 deliveries. While thousands of those have been for partners such as Walgreens in Virginia and Texas, the company primarily delivers in Australia, where it brings orders from DoorDash and the supermarket Coles to homes in more than 50 suburbs. 

“The service area that we cover there is between 70,000 and 100,000 people and it’s a relatively sort of geographically constrained location,” Woodworth said. “If you look at metrics from last year, we were seeing on the order of about 1,000-plus deliveries a day to that sort of one snapshot of the planet.”

Wing CEO Adam Woodworth shows the Alphabet company’s delivery drone to CNBC’s Katie Tarasov on April 25, 2023, in Hollister, California.

Andrew Evers

CNBC also got a glimpse of Walmart drone deliveries in its home state of Arkansas, with partner Zipline, which recently announced its fixed-wing aircraft has made 600,000 commercial deliveries, largely of medical supplies in Africa. In March, Zipline unveiled a far different model that lowers a “droid” to the ground by a tether.

A growing list of companies, including Sweetgreen and nutrition retailer GNC, have signed up to deliver with the new drone when it’s scheduled to come online in 2024.

“We operate in three states: North Carolina, Arkansas and Utah,” said Zipline CEO Keller Rinaudo Cliffton. “For some of the families in those states that we serve day in and day out, not only is drone delivery a thing, not only is it possible, it’s also now boring.”

Brandey Oliver, a Zipline customer in Pea Ridge, Arkansas, said she likes the services because they’re secure.

“If we’re not here and we get a delivery, nobody has access to our backyard,” said Oliver, who lives about 10 miles from Walmart’s headquarters in Bentonville. “It really helps in emissions, and global warming has me worried. So I like it that no delivery cars are used.”

DroneUp is another Walmart partner with financial backing from the retailer. CEO Tom Walker said its drones have made more than 110,000 deliveries in the U.S. DroneUp cut some jobs this week, in a shift to focus more on consumer delivery and away from enterprise services such as construction and real estate monitoring.

“We have 34 locations operating in six states today, and we’re delivering in less than 30 minutes,” Walker said. “The routes are designed to minimize flight over people, minimize flight over moving vehicles, and it chooses the optimum route both from a safety standpoint, but from an efficiency standpoint.”

Walmart said it made more than 6,000 drone deliveries across seven states in 2022 with DroneUp, Zipline and a third partner, Flytrex.

‘Most complex airspace in the world’

Reese Mozer has been in the drone industry for 14 years and remembers when Amazon’s then-CEO Jeff Bezos first announced Prime Air drone delivery on CBS’ “60 Minutes” in December 2013. 

“Those of us who were in the industry at that time could foresee many of the challenges that were coming to actually fulfill that vision,” said Mozer, now president of Ondas Holdings, which owns several drone companies such as Airobotics. “You know, delivering packages via drone is a very complicated problem because what we’re talking about is theoretically thousands of autonomous drones carrying packages over people’s heads, avoiding structures, avoiding other air traffic. And this is a particularly difficult problem in the United States because we have the busiest and most complex airspace in the world.”

In 2020, Amazon brought in former Boeing executive David Carbon to lead Prime Air. He announced the program’s first official deliveries on LinkedIn on Christmas Eve 2022. 

“It’s actually not that hard to deliver a package via drone,” Carbon said at an Amazon event in November. “It’s a very different problem space to design, build, certify and operate an autonomous safety-critical system that can operate over densely populated environments within the national airspace.”

Safety, Amazon said, remains its top priority. There have been multiple crashes at Amazon’s test site in Pendleton, Oregon, including one in 2021 that sparked a 20-acre brush fire. In a statement, Amazon said that Pendleton is “a closed testing facility where the intent is to learn the limits of our technology” and that it’s “never had an incident during an actual customer delivery flight.”

Amazon’s drone design has evolved significantly over the years. It started as a vertical lifting “octocopter” with eight exposed rotors, and then moved to a design with four large enclosed rotors. Then came a version that could take off vertically and fly forward like a plane.

The latest design was first unveiled in 2019. It’s now on its second iteration: the MK27-2, which is about 5.5 feet wide and weighs about 80 pounds. In an interview in November, Prime Air’s Calsee Hendrickson, who leads product and program management, said the technology onboard for safety features is what makes the MK27-2 bigger.

“If the drone encounters another aircraft when it’s flying, it’ll fly around that other aircraft,” Hendrickson said. “If when it gets to its delivery location, your dog runs underneath the drone, we won’t deliver the package.”

Amazon’s VP of Prime Air David Carbon showcased the current MK27-2 drone in Westborough, Massachusetts, on Nov. 10, 2022.

Erin Black

The FAA takes these types of safety features into consideration when companies such as Amazon apply for Part 135 air carrier certification, which allows drones to make commercial deliveries. Only five drone operators have been granted such certification: Wing and UPS in 2019, Amazon in 2020, Zipline in 2022, and Flytrex partner Causey Aviation Unmanned in 2023.

But there are multiple levels of Part 135 clearance. Prime Air drones, along with most other delivery drones, operate with a number of federal exemptions that greatly restrict where and how they can fly. For example, most delivery drones have to avoid active roadways and people. The FAA also greatly limits operations of drones beyond the visual line of sight of an observer. Beyond visual line of sight, or BVLOS, while meant to ensure a human can steer away from other aircraft that could cause a crash, is also perhaps the biggest current obstacle to drone delivery scalability.

When asked how many of Wing’s resources were going toward BVLOS, Woodworth said, “I would say all, right?” He added, “Otherwise, what’s the point of using an airplane?”

Introduced in February, the Increasing Competitiveness for American Drones Act of 2023 would streamline the BVLOS approvals process. For now, the restriction often means drones can fly only one or two miles from the takeoff spot and require extra people to watch each flight.

“That person is getting paid to stand there, watch that drone, and that all factors into the cost,” said Jeremiah Karpowicz, editorial director of Commercial UAV News. “Very quickly you see that’s not going to make sense.”

One way to get FAA clearance for BVLOS is with a “detect and avoid” system, or what Amazon calls sense-and-avoid. The idea is to identify moving objects such as other aircraft, people and pets, and static objects such as a chimney or a clothesline, and automatically steer clear of them. These systems often use cameras, which make it tough to operate in cloudy conditions or at night.

Zipline uses microphones to listen for and automatically avoid other aircraft. The FAA recently certified Zipline’s detect and avoid system so its drones can fly beyond visual line of sight and over populated areas.

“Zipline achieved 40 million commercial autonomous miles with zero human safety incidents before we sought certification in the U.S.,” Rinaudo Cliffton said.

In late 2021, Amazon wrote to the FAA about the safety features on the MK27-2 in hopes the regulator would remove some restrictions. But a year later, the FAA declined Amazon’s request, saying the company didn’t provide sufficient data to show the MK27-2 could operate safely over people, roads or structures.

Amazon moved forward anyway, though gradually, in Lockeford and in College Station, Texas. Amazon said the two markets were chosen because of their demographics and topography

“The FAA cares about two things,” Mozer said. “They care about you colliding with another aircraft and they care about you hurting someone on the ground. So if you are in a less populated area, that means there’s less people on the ground, less chance for injury. And there’s also probably just less air traffic.”

‘Horses are skittish’

Aside from clearing FAA hurdles, public acceptance remains a big obstacle facing the whole industry.

“The biggest public pushback is: What is that drone doing? It’s probably spying on me,” said Karpowicz.

In Lockeford, Thomas said that fear could cause problems.

“I did think some people might try to shoot it down,” he said.

All the drone companies we interviewed said their cameras don’t record or, if they do, the video isn’t made available to operators.

“The cameras on our aircraft are just for navigation,” said Wing’s Woodworth. “They just look straight down. They can’t move around and there’s no feedback to the operators, so they’re just used to help the plane figure out where it is.”

Some residents also worry the noise of drones will change the quiet rural feel of Lockeford.

“There’s a field with cows in it, and that’s just down the street from the Amazon warehouse,” Thomas said. “I don’t know if the cows will be bothered by the drones or not. Horses might be, though. Horses are skittish.”

Prime Air drones are not expected to exceed 58 decibels, according to an FAA assessment, about the noise level of an outdoor air conditioning unit. Woodworth said Wing’s drones stay under 55 decibels at cruising altitude. Zipline said its coming P2 model is even quieter.

“People completely hate the way that quadcopters and octocopters sound,” Rinaudo Cliffton said. “It’s super annoying. It sounds like an angry swarm of bees and there is zero chance that communities are going to accept that kind of an experience scaling up and becoming something that you have to listen to multiple times a day.”

For some companies, weather remains another hindrance to reliable delivery. DroneUp had to cancel flights due to wind on the day we visited the company in Arkansas. Earlier that morning, Zipline made two deliveries.

A drone operator loads a Walmart package into Zipline’s P1 fixed-wing drone for delivery to a customer home in Pea Ridge, Arkansas, on March 30, 2023.

Bunee Tomlinson

“We fly in really crazy rain storms, lightning storms, dust storms,” Rinaudo Cliffton said. “We fly in wind that is so strong that sometimes the aircraft is actually moving backwards relative to the ground. That is a gigantic engineering challenge. It’s taken us seven years of hardening every part of the system.”

Wing said its drones can operate in sustained winds above 20 knots and moderate rain. Amazon said the MK27-2 flies in clear, dry weather and can handle sustained winds up to 14 knots. 

Now Amazon is working on its next model, the MK30, meant to better handle high temperatures and rain and to fly further. It’s also supposed to be lighter, smaller and half as loud.

But user demand remains the big question.

“I’m still trying to figure out what exactly the benefit or the perk of the drone program would be,” said Audrey Tankersley, who was having lunch in Lockeford at Thomas’ deli the day of our visit.

Customers in Lockeford and College Station told CNBC that Amazon incentivizes them to order drone deliveries by offering them gift cards. Amazon said it was consumer demand that drove the program from the start.

“They’re excited about this,” Hendrickson said. “And that’s what Amazon does: We listen to our customers and then we work backwards to design the most efficient service that we can.”

It’s a challenging time for the market, as regulation and a slowing economy forced some downsizing and delayed plans. But those on the inside remain optimistic.

“I wish everybody else in the space the best luck,” Woodworth said. “Because I want the space to exist.”

Watch the video to learn more about how Amazon fell behind in drone delivery: https://www.cnbc.com/video/2023/05/17/at-100-deliveries-amazon-drones-fall-far-behind-google-and-walmart.html

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As Microsoft turns 50, Nadella sees future success built on ability to ‘win the new’

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As Microsoft turns 50, Nadella sees future success built on ability to 'win the new'

Microsoft CEO Satya Nadella speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.

Jason Redmond | AFP | Getty Images

A half-century ago, childhood friends Bill Gates and Paul Allen started Microsoft from a strip mall in Albuquerque, New Mexico. Five decades and almost $3 trillion later, the company celebrates its 50th birthday on Friday from its sprawling campus in Redmond, Washington.

Now the second most valuable publicly traded company in the world, Microsoft has only had three CEOs in its history, and all of them are in attendance for the monumental event. One is current CEO Satya Nadella. The other two are Gates and Steve Ballmer, both among the 11 richest people in the world due to their Microsoft fortunes.

While Microsoft has mostly been on the ascent of late, with Nadella turning the company into a major power player in cloud computing and artificial intelligence, the birthday party lands at an awkward moment.

The company’s stock price has dropped for four consecutive months for the first time since 2009 and just suffered its steepest quarterly drop in three years. That was all before President Donald Trump’s announcement this week of sweeping tariffs, which sent the Nasdaq tumbling on Thursday and Microsoft down another 2.4%.

Cloud computing has been Microsoft’s main source of new revenue since Nadella took over from Ballmer as CEO in 2014. But the Azure cloud reported disappointing revenue in the latest quarter, a miss that finance chief Amy Hood attributed in January to power and space shortages and a sales posture that focused too much on AI. Hood said revenue growth in the current quarter will fall to 10% from 17% a year earlier

Nadella said management is refining sales incentives to maximize revenue from traditional workloads, while positioning the company to benefit from the ongoing AI boom.

“You would rather win the new than just protect the past,” Nadella told analysts on a conference call.

The past remains healthy. Microsoft still generates around one-fifth of its roughly $262 billion in annual revenue from productivity software, mostly from commercial clients. Windows makes up around 10% of sales.

Meanwhile, the company has used its massive cash pile to orchestrate its three largest acquisitions on record in a little over eight years, snapping up LinkedIn in late 2016, Nuance Communications in 2022 and Activision Blizzard in 2023, for a combined $121 billion.

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“Microsoft has figured out how to stay ahead of the curve, and 50 years later, this is a company that can still be on the forefront of technology innovation,” said Soma Somasegar, a former Microsoft executive who now invests in startups at venture firm Madrona. “That’s a commendable place for the company to be in.”

When Somasegar gave up his corporate vice president position at Microsoft in 2015, the company was fresh off a $7.6 billion write-down from Ballmer’s ill-timed purchase of Nokia’s devices and services business.

Microsoft is now in a historic phase of investment. The company has built a $13.8 billion stake in OpenAI and last year spent almost $76 billion on capital expenditures and finance leases, up 83% from a year prior, partly to enable the use of AI models in the Azure cloud. In January, Nadella said Microsoft has $13 billion in annualized AI revenue, more even than OpenAI, which just closed a financing round valuing the company at $300 billion.

Microsoft’s spending spree has constrained free cash flow growth. Guggenheim analysts wrote in a note after the company’s earnings report in January, “You just have to believe in the future.” 

Of the 35 Microsoft analysts tracked by FactSet, 32 recommend buying the stock, which has appreciated tenfold since Nadella became CEO. Azure has become a fearsome threat to Amazon Web Services, which pioneered the cloud market in the 2000s, and startups as well as enterprises are flocking to its cloud technology.

Winston Weinberg, CEO of legal AI startup Harvey, uses OpenAI models through Azure. Weinberg lauded Nadella’s focus on customers of all sizes.

“Satya has literally responded to emails within 15 minutes of us having a technical problem, and he’ll route it to the right person,” Weinberg said.

Still, technology is moving at an increasingly rapid pace and Microsoft’s ability to stay on top is far from guaranteed. Industry experts highlighted four key issues the company has to address as it pushes into its next half-century.

Microsoft didn’t respond to a request for comment.

Regulation

There’s some optimism that the Trump administration and a new head of the Federal Trade Commission will open up the door to the kinds of deal-making that proved very challenging during Joe Biden’s presidency, when Lina Khan headed the FTC.

But regulatory uncertainty remains.

It’s not a new risk for Microsoft. In 1995, the company paid a $46 million breakup fee to tax software maker Intuit after the Justice Department filed suit to block the proposed deal. Years later, the DOJ got Microsoft to revamp some of its practices after a landmark antitrust case.

Microsoft pushed through its largest acquisition ever, the $75 billion purchase of video game publisher Activision, during Biden’s term. But only after a protracted legal battle with the FTC.

At the very end of Biden’s time in office, the FTC opened an antitrust investigation on Microsoft. That probe is ongoing, Bloomberg reported in March.

Nadella has cultivated a relationship with Trump. In January, the two reportedly met for lunch at Trump’s Mar-a-Lago resort in Florida, alongside Tesla CEO Elon Musk.

President Donald Trump shakes hands with Microsoft CEO Satya Nadella during an American Technology Council roundtable at the White House in Washington on June 19, 2017.

Nicholas Kamm | AFP | Getty Images

The U.S. isn’t the only concern. The U.K.’s Competition and Markets Authority said in January that an independent inquiry found that “Microsoft is using its strong position in software to make it harder for AWS and Google to compete effectively for cloud customers that wish to use Microsoft software on the cloud.”

Microsoft last year committed to unbundling Teams from Microsoft 365 productivity software subscriptions globally to address concerns from the European Union’s executive arm, the European Commission.

Noncore markets

Fairly early in Microsoft’s history the company became the world’s largest software maker. And in cloud, Microsoft is the biggest challenger to AWS. Most of the company’s revenue comes from corporations, schools and governments.

But Microsoft is in other markets where its position is weaker. Those include video games, laptops and search advertising.

Mary Jo Foley, editor in chief at advisory group Directions on Microsoft, said the company may be better off focusing on what it does best, rather than continuing to offer Xbox consoles and Surface tablets.

“Microsoft is not good at anything in the consumer space (with the possible exception of gaming),” wrote Foley, who has covered the company on and off since 1984. “You’re wasting time and money on trying to figure it out. Microsoft is an enterprise company — and that is more than OK.”

It’s unlikely Microsoft will back away from games, particularly after the Activision deal. Nearly $12 billion of Microsoft’s $69.6 billion in fourth-quarter revenue came from gaming, search and news advertising, and consumer subscriptions to the Microsoft 365 productivity bundle. That doesn’t include sales of devices, Windows licenses or advertising on LinkedIn.

“As a company, Microsoft’s all-in on gaming,” Nadella said in 2021 in an appearance alongside gaming unit head Phil Spencer. “We believe we can play a leading role in democratizing gaming and defining that future of interactive entertainment, quite frankly, at scale.”

AI pressure

Microsoft has an unquestionably strong position in AI today, thanks in no small part to its early alliance with OpenAI. Microsoft has added the startup’s AI models to Windows, Excel, Bing and other products.

The breakout has been GitHub Copilot, which generates source code and answers developers’ questions. GitHub reached $2 billion in annualized revenue last year, with Copilot accounting for more than 40% of sales growth for the business. Microsoft bought GitHub in 2018 for $7.5 billion.

Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event in San Francisco on Nov. 6, 2023.

Justin Sullivan | Getty Images

But speedy deployment in AI can be worrisome.

The company is “not providing the underpinnings needed to deploy AI properly, in terms of security and governance — all because they care more about being ‘first,'” Foley wrote. Microsoft also hasn’t been great at helping customers understand the return on investment, she wrote.

AI-ready Copilot+ PCs, which Microsoft introduced last year, aren’t gaining much traction. The company had to delay the release of the Recall search feature to prevent data breaches. And the Copilot assistant subscription, at $30 a month for customers of the Microsoft 365 productivity suite, hasn’t become pervasive in the business world.

“Copilot was really their chance to take the lead,” said Jason Wong, an analyst at technology industry researcher Gartner. “But increasingly, what it’s seeming like is Copilot is just an add-on and not like a net-new thing to drive AI.”

Innovation

At 50, the biggest question facing Microsoft is whether it can still build impressive technology on its own. Products like the Surface and HoloLens augmented reality headset generated buzz, but they hit the market years ago.

Teams was a novel addition to its software bundle, though the app’s success came during the Covid pandemic after the explosive growth in products like Zoom and Slack, which Salesforce acquired. And Microsoft is still researching quantum computing.

In AI, Microsoft’s best bet so far was its investment in OpenAI. Somasegar said Microsoft is in prime position to be a big player in the market.

“To me, it’s been 2½ years since ChatGPT showed up, and we are not even at the Uber and Airbnb moment,” Somasegar said. “There is a tremendous amount of value creation that needs to happen in AI. Microsoft as much as everybody else is thinking, ‘What does that mean? How do we get there?'”

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AI could affect 40% of jobs and widen inequality between nations, UN warns

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AI could affect 40% of jobs and widen inequality between nations, UN warns

Artificial intelligence robot looking at futuristic digital data display.

Yuichiro Chino | Moment | Getty Images

Artificial intelligence is projected to reach $4.8 trillion in market value by 2033, but the technology’s benefits remain highly concentrated, according to the U.N. Trade and Development agency.

In a report released on Thursday, UNCTAD said the AI market cap would roughly equate to the size of Germany’s economy, with the technology offering productivity gains and driving digital transformation. 

However, the agency also raised concerns about automation and job displacement, warning that AI could affect 40% of jobs worldwide. On top of that, AI is not inherently inclusive, meaning the economic gains from the tech remain “highly concentrated,” the report added. 

“The benefits of AI-driven automation often favour capital over labour, which could widen inequality and reduce the competitive advantage of low-cost labour in developing economies,” it said. 

The potential for AI to cause unemployment and inequality is a long-standing concern, with the IMF making similar warnings over a year ago. In January, The World Economic Forum released findings that as many as 41% of employers were planning on downsizing their staff in areas where AI could replicate them.  

However, the UNCTAD report also highlights inequalities between nations, with U.N. data showing that 40% of global corporate research and development spending in AI is concentrated among just 100 firms, mainly those in the U.S. and China. 

Furthermore, it notes that leading tech giants, such as Apple, Nvidia and Microsoft — companies that stand to benefit from the AI boom — have a market value that rivals the gross domestic product of the entire African continent. 

This AI dominance at national and corporate levels threatens to widen those technological divides, leaving many nations at risk of lagging behind, UNCTAD said. It noted that 118 countries — mostly in the Global South — are absent from major AI governance discussions. 

UN recommendations 

But AI is not just about job replacement, the report said, noting that it can also “create new industries and and empower workers” — provided there is adequate investment in reskilling and upskilling.

But in order for developing nations not to fall behind, they must “have a seat at the table” when it comes to AI regulation and ethical frameworks, it said.

In its report, UNCTAD makes a number of recommendations to the international community for driving inclusive growth. They include an AI public disclosure mechanism, shared AI infrastructure, the use of open-source AI models and initiatives to share AI knowledge and resources. 

Open-source generally refers to software in which the source code is made freely available on the web for possible modification and redistribution.

“AI can be a catalyst for progress, innovation, and shared prosperity – but only if countries actively shape its trajectory,” the report concludes. 

“Strategic investments, inclusive governance, and international cooperation are key to ensuring that AI benefits all, rather than reinforcing existing divides.”

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Nvidia positioned to weather Trump tariffs, chip demand ‘off the charts,’ says Altimeter’s Gerstner

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Nvidia positioned to weather Trump tariffs, chip demand 'off the charts,' says Altimeter's Gerstner

Altimeter CEO Brad Gerstner is buying Nvidia

Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.

“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.

President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.

The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.

Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.

Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”

He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.

“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”

WATCH: Brad Gerstner is buying Nvidia

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