Nvidia stock fell Tuesday after the U.S. Commerce Department tightened its restrictions on the export of artificial intelligence chips and manufacturing equipment to China.
The new restrictions are designed to close loopholes on export controls announced a year ago. The Biden administration said it is seeking to prevent China's military from importing advanced semiconductors and chip manufacturing equipment.
The tighter controls will target Nvidia's A800 and H800 chips, which the company created for the Chinese market after the initial U.S. trade restrictions last October. Those chips are less capable than Nvidia's top-of-the-line graphics processors for artificial intelligence.
Earlier trade restrictions prevented semiconductor equipment supplier ASML from selling its advanced lithography gear in China.
The new restrictions also are likely to impact AI chips from Advanced Micro Devices and Intel, Mizuho Securities analyst Vijay Rakesh said in a client note.
But Nvidia will take the biggest hit, since it gets about 10% to 20% of its AI sales from China, Rakesh said. That works out to about $2 billion to $5 billion of its roughly $30 billion in data center sales this year, he said. At the midpoint, that could result in a negative impact of 70 cents in earnings per share vs. the consensus estimate of $10.80 for the year, or about a 6% reduction.
Nvidia Stock, Peers Drop On News
On the stock market today, Nvidia stock sank 4.7% to close at 439.38. AMD stock retreated 1.2% to 105.14. Intel stock declined 1.4% to 36.06.
Nvidia does not expect the new trade restrictions to have a meaningful impact on its financial results near term.
"We comply with all applicable regulations while working to provide products that support thousands of applications across many different industries," an Nvidia spokesperson said in a statement. "Given the demand worldwide for our products, we don't expect a near-term meaningful impact on our financial results."
NVDA Stock On Five IBD Lists
The Semiconductor Industry Association said the U.S. needs to coordinate with its allies to make sure that China can't get the restricted technology from other countries.
"Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere," the SIA said in a statement. "Accordingly, we urge the administration to strengthen coordination with allies to ensure a level playing field for all companies."
Wall Street analysts are speculating that China could retaliate to the latest White House actions by blocking Broadcom's acquisition of VMware.
Nvidia stock is on five IBD stock lists. They include Leaderboard, Stock Spotlight, IBD 50, Big Cap 20 and Tech Leaders.
AI has been a major driver of Nvidia and other stocks this year.
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