Nvidia shares dropped on Wednesday after the United States government limited sales of top AI chips to China. The tech company claims that its A100 and H100 high-performance AI chips would be impacted by the limitation in order to lessen the possibility that the graphics processing units in mention would be utilized by the Chinese military.
“The license requirement also includes any future Nvidia integrated circuit achieving both peak performance and chip-to-chip I/O performance equal to or greater than thresholds that are roughly equivalent to the A100, as well as any system that includes those circuits,” Nvidia said in an 8-k filing with the SEC.
Since the restricted products are sold to businesses in China, the corporation now anticipates that it may lose $400 million in future sales in China and Hong Kong. The restriction will most certainly affect the previously projected $5.9 billion in revenue for the current quarter for Nvidia.
The company stated that it was requesting permission to continue some exports to China but is unsure as to whether the United States government will give an exception.
“We are working with our customers in China to satisfy their planned or future purchases with alternative products and may seek licenses where replacements aren’t sufficient,” an Nvidia representative told CNBC. “The only current products that the new licensing requirement applies to are A100, H100, and systems such as DGX that include them.”
The new licensing requirements are also being imposed on AMD, a spokesman of AMD confirmed to CNBC. The restriction will apply to AMD’s MI250 artificial intelligence circuit, but according to AMD, the new restrictions won’t have a meaningful impact on company operations, hence the chipmaker didn’t file an 8-k warning.
“While we are not in a position to outline specific policy changes at this time, we are taking a comprehensive approach to implement additional actions necessary related to technologies, end-uses, and end-users to protect U.S. national security and foreign policy interests.” the U.S. Department of Commerce spokesperson told CNBC.
Chip Stocks in Danger of Falling Further
Citi analysts have cautioned that during these times of recession and inventory increase, semiconductor stocks are yet to reach THE bottom of this correction cycle.
“Consensus estimates declined during earnings season for the first time since the pandemic driven by the PC and handset slowdown amidst the recession. We also witnessed the first signs of a correction in the automotive and industrial end markets and we continue to believe we are entering the worst semiconductor downturn in a decade given the recession and inventory build,” the analyst wrote in a note to a client on Tuesday.
Analysts have maintained that “every company/end market will correct,” in his words.
The benchmark U.S. index for semiconductor companies, SOX (PHLX Semiconductor Sector), would eventually hit record new lows as analysts warn that the index could drop another 25%.
From the first week of January to July, SOX had a 40% decline before climbing 30% from 20-month lows. The index has, however, started to decline once more after suffering almost 9% in losses over the previous two weeks.
Citi points out that during earnings season, consensus forecasts drop by 4%, which also contributed to the most recent slide in chip stock prices.
“We expect Consensus estimates to decline by at least 10% over the next few quarters, similar to 2011/2012 downturn, driven by demand contraction and inventory correction,” analysts added.
Nvidia shares are trading at 17-month lows after the company filed an 8-k warning that its outlook may be negatively impacted by export bans imposed by the United States on China and Hong Kong.