Nvidia's stock eases losses in wake of expanded restrictions on China sales

By Emily Bary

Department of Commerce looks to cut back on China's ability to access AI chips

Chip stocks were under some pressure Tuesday as the U.S. said it would expand restrictions on semiconductor sales to China, though many names were paring losses as the session wore on.

"As we implement these restrictions, we will keep working to protect our national security by restricting access to critical technologies, vigilantly enforcing our rules, while minimizing any unintended impact on trade flows," Secretary of Commerce Gina Raimondo said in a Tuesday release.

The Department of Commerce added in the release that the new rules, which reinforce ones from a year ago, were created in part to address China's "efforts toobtain semiconductor manufacturing equipment essential to producing advanced integrated circuits needed for the next generation of advanced weapon systems, as well as high-end advanced computing semiconductors necessary to enable the development and production of technologies such as artificial intelligence (AI) used in military applications."

Shares of Nvidia Corp. (NVDA) were off nearly 4% in morning trading Tuesday, paring losses after having fallen as much as 7.8% earlier in the session.

"Given the demand worldwide for our products, we don't expect a near-term meaningful impact on our financial results," an Nvidia spokesperson said in a statement.

Shares of Intel Corp. (INTC) were off more than 1%, while shares of the PHLX Semiconductor Index SOX were down 0.5%.

"We are evaluating the impact of the updated export controls on the U.S. semiconductor industry," the Semiconductor Industry Association said in a statement Tuesday. The trade group added that "[o]verly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere."

Raymond James analyst Srini Pajjuri saw a limited impact for Nvidia based on his initial read of the Department of Commerce's documentation.

"The key question for us is whether the ban will expand to include recently launched L40S," he wrote. "The rules mention that any GPU that has >50B transistors AND [High Bandwidth Memory] might raise a red flag and likely require a license."

While the H800/A800 each have more than 50B (54B/80B) transistors and come with High Bandwidth Memory, the L40S falls above the threshold for its number of transistors but doesn't come with High Bandwidth Memory.

"Our initial reaction (not yet confirmed by the company) is that L40S does not fall under new restrictions, which should help offset some impact from H800/A800," Pajjuri wrote.

See also (from May 2023): Nvidia CEO warns of 'enormous damage' if China chip war escalates

-Emily Bary

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10-17-23 1205ET

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