Nvidia
can expect to get caught in the crossfire of new U.S. rules on exporting artificial intelligence chips to China, setting it and other semiconductor makers up for a multibillion-dollar hit.
Chip makers play a key role in developing the AI technology that has driven a market frenzy. The downside is that Nvidia (ticker: NVDA) and its peers are vulnerable to American concerns about powerful AI in Chinese control. The upside is that high demand, at least for Nvidia’s chips, may help protect investors.
The Biden administration is considering more restrictions on selling AI chips to customers in China that could go into effect as soon as early July, The Wall Street Journal reported, citing people familiar with the matter.
The new limits, part of final rules expanding measures announced in October, would stop shipments to China from Nvidia,
Advanced Micro Devices
(AMD), and others without first obtaining a license, the report said.
Last year, the White House introduced rules aimed at denting China’s AI abilities, prompting Nvidia to make a lower-performance chip for the Chinese market. The new restrictions would ban the sale of those chips without a license, the report said.
Nvidia declined to comment to Barron’s, and AMD didn’t immediately respond to a request for comment.
On Wednesday, Nvidia’s chief financial officer told investors in a webinar that the company was aware of the possibility of more restrictions. But because of strong demand, Nvidia doesn’t expect any “immediate material impact” to its results if the controls are adopted, CFO Chief Financial Officer Colette Kress said.
China is an important market for semiconductors, and new rules have the potential to be a headwind for chip stocks, which have been among the biggest beneficiaries of a investing boom focused on companies exposed to AI.
In afternoon trading Wednesday, Nvidia stock was down 1.5% and AMD was off 0.3%. Shares in
Micron Technology
(MU), which in May saw Beijing bar some of its products from being sold to key customers, were up 0.1%. In the broader market, the
S&P 500
was down 0.1% and the
Nasdaq
was off 0.5%.
“With an update on export controls now expected, investors will be assessing just how limiting the new rules will be for chip makers’ sales,” Susannah Streeter, an analyst at broker
Hargreaves Lansdown,
wrote in a Wednesday note. “A handful of tech companies pack a huge punch on Wall Street due to their sheer size, so any wobble in confidence reverberates on indices.”
It’s possible that chip stocks could see more sell pressure in the near term. That might actually be an opportunity for investors to buy the dip in Nvidia, which has already soared more than 185% so far this year.
“We estimate China data center sales in the 5-10% range of total $30 billion data center sales this year,” Atif Malik, an analyst at Citi, wrote in a Tuesday note. “Overall, we believe AI demand will exceed supply this year and Nvidia can move its chips around.”
Malik reiterated his Buy rating on Nvidia, though noted that the $400 million impact on China sales detailed by the company last year—not yet updated—is now likely to be far higher because of increased demand. The analyst added that Nvidia could comment on this topic as soon as Wednesday, when executives deliver remarks on AI.
The dip-buying opportunity may not last long—or, depending on how the market reacts to any update from Nvidia, there could be a wider window.
Write to Jack Denton at [email protected]
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