Nvidia, AMD fall on China sales halt; analysts believe it may be a 'structural risk'
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Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) fell on Thursday after both companies confirmed that the U.S. government has curbed the sale of some of their products to China and Russia, with analysts noting the news could be a "structural risk" for the entire industry.
TF International Securities analyst Ming-Chi Kuo tweeted that the restriction for both Nvidia (NVDA) and AMD (AMD) could seriously impact China's ability to do work in the artificial intelligence space, as the country leads the world in AI patent filings, citing information from the World Intellectual Property Organization.
In the 8-K filing on Wednesday, Nvidia (NVDA) said 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 (NVDA) said the impact could be worth as much as $400M in revenue, while AMD (AMD) did not see a material impact. Kuo added that the U.S. government's ability to limit restrictions on suppliers, such as Taiwan Semiconductor (TSM), which makes chips for both Nvidia (NVDA) and AMD (AMD) is "limited," but there could be risk this is bigger than both companies.
"The impact of the sales restriction on suppliers such as TSMC is limited, but investors worry US [government] may expand restrictions on more chips which could affect more server-related or other products," Kuo explained. "This uncertainty could be a structural risk for the semiconductor sector."
On Thursday, China expressed its displeasure to the semiconductor halt imposed by the U.S.
"For some time, the US side has been continuously abusing export control measures to restrict exports of semiconductor-related items to China, which China firmly opposes," China's Ministry of Commerce spokeswoman Shu Yuting said at a press conference, adding that it would hurt both China and U.S. companies.
In a separate 8-K filing on Thursday, Nvidia (NVDA) said the U.S. government has authorized exports of its H100 integrated circuits and it has authorized both A100 and H100 order fulfillment and logistics through the company's Hong Kong facility through September 1, 2023.
Nvidia (NVDA) shares fell 4.5% to $144.15 in premarket trading, while AMD (AMD) declined 2.5%.
Bank of America analyst Vivek Arya said the news was "unwelcome" but would be "manageable over time."
"The news comes at an inopportune time given weakness in NVDA’s gaming segment and other macro concerns, and could create other unforeseen impacts at NVDA’s China-based R&D programs (including ramp of next-gen H100 products)," Arya wrote in a note to clients.
Citi analyst Atif Malik added that some China customers could "stockpile" Nvidia's (NVDA) older V100 products this quarter and while Nvidia wrote down some non-A100 inventory, it's possible that "licenses will get delayed/not approved long-term."
Earlier this week, Advanced Micro Devices (AMD) unveiled its new Ryzen 7000 series of processors, including what it described as the "fastest core" in gaming.