Nvidia is likely to find itself in the crosshairs of new US rules on exports of artificial intelligence chips to China. That could set it and other chipmakers up for a multibillion-dollar win amid rising tensions in an important technology Cold War.
Chipmakers are playing a key role in developing the AI technology that could transform the core of the recent market frenzy. Companies like Nvidia (ticker: NVDA ) are particularly vulnerable to geopolitical pressures—amid U.S. concerns about powerful AI in the hands of China. But inverse demand dynamics means investors needn’t worry too much.
The Biden administration is considering new restrictions on the sale of chips used in AI to Chinese customers as part of an expansion of the final rules announced last October. The Wall Street Journal reported, citing anonymous sources. The report said the business sector could see moves by early July to stop shipments from Nvidia, Advanced Micro Devices (AMD) and others to China and other markets without first obtaining a license.
Last year the White House introduced rules aimed at curtailing China’s AI capabilities and prompted Nvidia to develop lower-performance versions of its chips for the Chinese market, but the new restrictions would also ban the sale of those chips without a license, the report said. said.
Neither Nvidia nor AMD immediately responded to a request for comment.
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China is an important market for semiconductors, and the new rules are likely to be a headwind for chip stocks, one of the biggest beneficiaries of a recent investment boom focused on companies exposed to AI.
Shares of Nvidia fell 3% in pre-market U.S. trading on Wednesday, while AMD shares fell 2.7%. Shares of Micron Technology ( MU ) lost 0.8% after Beijing banned the sale of some of its products to key customers in May. Declines weighed on the broader market, tracking futures
S&P 500
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“With an update on export controls now expected, investors will assess how restrictive the new rules will be for chipmakers’ sales,” said Susanna Streeter, analyst at broker Hargreaves Lansdowne.
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he wrote in a note on Wednesday. “A few tech companies pack a big punch on Wall Street because of their sheer size, so any wobble in confidence reverberates in the indices.”
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The chip stocks are likely to see more selling pressure in the near term. This could actually be an opportunity for investors in Nvidia, which is up more than 185% so far this year.
“We estimate China’s data center sales in the range of 5-10% of total $30 billion data center sales this year,” Citi analyst Atif Malik wrote in a Tuesday note. “Overall, we believe AI demand will outstrip supply this year, and Nvidia will be able to move its chips.”
Malik reiterated his buy rating on Nvidia, though the impact of the $400 million in China sales the company described last year—which has not yet been updated—will be much higher now that demand has picked up. The analyst added that Nvidia may comment on the topic when executives release comments on AI on Wednesday.
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The dip-buying opportunity may not last long — or, depending on how the market reacts to any update from Nvidia, there may be a wider window.
Write to Jack Denton at [email protected]
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