Nvidia is likely to be caught in the crossfire of new US rules on the export of AI chips to China. That could put it and other chipmakers facing a multibillion-dollar blow amid rising tensions in a critical tech cold war.
Chipmakers are playing a major role in developing potentially transformative AI technology at the epicenter of the latest market craze. On the downside, this means companies like Nvidia (stock ticker: NVDA) are more vulnerable to geopolitical pressures — amid US concerns about powerful AI in the hands of China. But to the upside, the demand dynamics mean that investors may not need to worry as much.
The Biden administration is considering new restrictions on the sale of chips used in artificial intelligence to Chinese customers, part of the final rules for expanding measures announced last October, The Wall Street Journal reportedCiting anonymous sources. The report said it could see the Commerce Department move as soon as early July to halt shipments from Nvidia, Advanced Micro Devices (AMD) and others to China as well as other markets of concern without first obtaining a license.
Last year, the White House introduced rules intended to affect China’s artificial intelligence capabilities, which is what prompted Nvidia to offer a lower-performance version of its chips to the Chinese market, but the new restrictions would ban even the sale of those chips without a license, according to the report. He said.
Neither Nvidia nor AMD immediately responded to a request for comment.
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China is an important semiconductor market, and the new rules have the potential to be a headwind for chip stocks, which have been among the biggest beneficiaries of a recent investment boom focused on AI-exposed companies.
Shares in Nvidia fell 3% in US premarket trading Wednesday, with AMD stock down 2.7%. Shares in Micron Technology (MU), which in May saw Beijing block sales of some of its products to major customers, lost 0.8%. The declines were weighing on the broader market, with futures tracking
Standard & Poor’s 500
And
Nasdaq
minimum.
“With export controls now expected to be updated, investors will assess how restrictive the new rules are on chipmakers’ sales,” Susanna Streeter, analyst at broker Hargreaves Lansdown.
And
wrote in a note Wed. “A handful of tech companies are hitting Wall Street hard because of their sheer size, so any fluctuation in confidence reverberates through the indices.”
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Chip stocks are likely to see more selling pressure in the near term. This could actually be an opportunity for investors to buy into the dip in Nvidia, which is already up more than 185% so far this year.
“We estimate Chinese data center sales in the 5-10% range of total data center sales of $30 billion this year,” Citi analyst Atif Malik wrote in a note Tuesday. “Overall, we believe demand for AI will outpace supply this year and Nvidia can move its chips around.”
Malek reiterated his Buy rating on Nvidia, though he noted that the $400 million impact on China detail sales by the company last year — not yet updated — is now likely to be much higher due to increased demand. The analyst added that Nvidia could comment on this topic as soon as Wednesday, when executives give remarks about artificial intelligence.
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The buying opportunity on the dip may not last for long — or, depending on how the market reacts to any Nvidia update, there may be a wider window.
Write to Jack Denton at [email protected]
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