Nvidia is likely to be caught in the crossfire of new US rules on exporting artificial intelligence chips to China. That could deal him and other chipmakers a multi-billion dollar blow amid escalating Cold War tensions over critical technologies.
Chipmakers are playing a key role in developing the potentially transformative AI technology at the heart of the recent market boom. On the flip side, this means companies like Nvidia (ticker symbol: NVDA) are more vulnerable to geopolitical pressures given US concerns about powerful AI in Chinese hands. On the other hand, the upward momentum in demand means investors might not need to worry too much.
The Biden administration is considering new restrictions on the sale of chips used in AI to Chinese customers. This is part of final measures to expand the rules announced last October, the Wall Street Journal reported, citing anonymous sources. The Commerce Department could halt shipments of Nvidia, Advanced Micro Devices (AMD) and others to China and other worrying markets as early as July without first obtaining a license, the report said.
Last year, the White House introduced rules aimed at crippling China’s AI capabilities, prompting Nvidia to make a lower-performing version of its chips for the Chinese market, but the new restrictions would even ban those chips from being sold without a license , the report said.
Neither Nvidia nor AMD immediately responded to a request for comment.
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China is a key semiconductor market, and new rules could negatively impact chip stocks, which have been among the biggest beneficiaries of the recent investment boom focused on AI-related companies.
Shares of Nvidia fell 3% in premarket US trade on Wednesday, while shares of AMD fell 2.7%. Micron Technology (MU), which Beijing banned from selling some of its products to key customers in May, lost 0.8%. The declines weighed on the broader market as futures tracked the S&P 500 and Nasdaq lower.
“Now that an update to export controls is expected, investors will gauge how restrictive the new rules will be on chipmaker sales,” Susannah Streeter, an analyst at brokerage Hargreaves Lansdown, wrote in a note on Wednesday. “A handful of tech companies have a tremendous impact on Wall Street because of their sheer size, so any swing in confidence impacts the indices.”
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It’s likely that chip stocks could face more selling pressure in the near future. That could actually be an opportunity for investors to buy the drop in Nvidia, which is up more than 185% so far this year.
“We estimate that data center revenue in China will account for between 5% and 10% of the total $30 billion in data center revenue this year,” wrote Atif Malik, an analyst at Citi, in a note Tuesday. “Overall, we expect AI demand to outstrip supply this year, allowing Nvidia to shift its chips.”
Malik reiterated his buy recommendation for Nvidia, but noted that the $400 million impact on China sales — not yet updated — quoted by the company last year is now likely to be far larger due to increased demand. The analyst added that Nvidia could comment on the matter as early as Wednesday when executives comment on AI.
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The opportunity to buy at lows may not last long — or, depending on how the market reacts to an update from Nvidia, a larger window could open up.
Write to Jack Denton at [email protected]