Nvidia Corp. (NVDA) shares fell sharply Thursday after the U.S. government ordered the chipmaker to stop exporting artificial intelligence components to clients in China.
Nvidia said in Securities and Exchange Commission filing late Wednesday that the government has imposed new restrictions on the sale of its A100 and forthcoming H100 chips, which are also incorporated in other Nvidia-designed data center products.
The chipmaker said it had booked $400 million sales -- around 11% of expected data center revenues -- of A100-linked products to China that could be scrapped it clients won't purchase alternative products.
Nvidia added that the launch of H100 chips, which was expected later this year, will likely be delayed as it transitions some of its operators out of China as a result of the U.S. government order.
Rival chipmaker Advanced Micro Devices (AMD) was also told it can no longer sell its MI250 AI chips into the China market, although the group told Reuters it doesn't expect its MI100 chips to be affected by the new licensing rules.
"The (U.S. Government) indicated that the new license requirement will address the risk that the covered products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China and Russia," Nvidia said, adding it doesn't sell products to customers in Russia.
Nvidia shares were marked 10.8% lower in early afternoon trading Thursday to change hands at $134.67 each. AMD shares fell 6% to $79.78 each.
"Near term, we think it's likely Nvidia will be able to backfill the ~$400 million with older-generation GPU sales into China, as we observed similar behavior by Huawei when similar restrictions were levied several years back," said KeyBanc Capital Markets analyst John Vinh.
"However, this development is clearly negative for Nvidia, as we estimate normalized China-based data center demand to represent 25-30% of the Company's data center business," he added.
Late last month, Nvidia posted weaker-than-expected second quarter earnings and forecast more gaming sector weakness in the months ahead for its gaming chip sector.
Nvidia said Data center revenues were pegged at $3.81 billion, a 61% increase from last year, while Revenues from gaming chips, which are also used in cryptocurrency mining, fell 33% from last year to $2.04 billion.
Looking into the current quarter, Nvidia said it sees revenues of around $5.9 billion, plus or minus 2%, compared to the Street consensus of $6.95 billion, with gross margins of around 65%, plus or minus 2%. Gaming weakness, Nvidia said, would be partly offset by firmer demand in its automotive and data center businesses.
