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Nvidia Faces Major Setback as Trump Administration Blocks AI Chip Sales to China

  • GCW
  • Apr 16
  • 3 min read

The Trump administration's recent decision to effectively bar Nvidia from selling its custom artificial intelligence processors to China has sent shockwaves through the tech industry. This move is expected to result in a significant financial hit for Nvidia, with potential write-offs reaching up to $5.5 billion in inventory and purchase commitments.

Key Takeaways

  • Nvidia is now required to obtain an export license to sell its H20 processors in China.

  • The company anticipates a write-off of up to $5.5 billion due to the new restrictions.

  • Analysts predict that the loss of sales in China, which accounts for over 10% of Nvidia's revenue, will be manageable due to strong sales in other markets.

  • Competitor AMD is also affected, expecting a write-off of up to $800 million due to similar restrictions.

Overview of the Restrictions

On April 9, Nvidia disclosed in a regulatory filing that the U.S. government has mandated an export license for its H20 processor, which was specifically designed for the Chinese market. This requirement is set to remain in effect indefinitely, marking a significant shift in the U.S. government's approach to technology exports to China.

The H20 processor was developed to comply with existing restrictions on advanced processors, making it less capable than Nvidia's more powerful Blackwell series chips available in other markets. Analysts suggest that the write-off indicates Nvidia's belief that it will not receive the necessary licenses to sell these processors in China.

Financial Implications

The financial implications of this decision are substantial. Nvidia's anticipated $5.5 billion charge will cover orders from major Chinese internet services such as Alibaba, ByteDance, and Tencent. The company's fiscal first quarter ends on April 27, with results expected to be reported on May 28.

  • Analyst Insights:Matt Bryson (Wedbush): The write-off suggests Nvidia is preparing for a complete ban on sales to China.Kevin Cassidy (Rosenblatt Securities): Described the situation as effectively a ban, given the ongoing trade tensions.Vivek Arya (BofA Securities): Believes the loss of China sales is manageable, citing strong sales in unrestricted markets.

Market Reaction

Following the announcement, Nvidia's stock plummeted by more than 7%, trading at approximately $104.30. This decline reflects investor concerns over the company's future revenue streams and the broader implications of U.S.-China trade relations.

Several Wall Street analysts have adjusted their price targets for Nvidia stock in light of the news:

  • Kevin Cassidy: Lowered target from $220 to $200 but maintained a buy rating.

  • Vivek Arya: Set a target of $160, emphasizing the potential for strong margins from other products.

Broader Industry Impact

Nvidia is not alone in facing challenges due to these restrictions. Competitor Advanced Micro Devices (AMD) has also announced that it expects to incur a charge of up to $800 million related to its AI chip sales to China. AMD is now required to seek licenses for its MI308 products, mirroring Nvidia's situation.

In the wake of these developments, AMD's stock also saw a decline, dropping over 6% to around $89.03.

Conclusion

The Trump administration's decision to restrict AI chip sales to China marks a significant escalation in the ongoing tech trade war. As Nvidia and AMD navigate these new challenges, the long-term implications for the semiconductor industry and U.S.-China relations remain uncertain. Investors and analysts alike will be closely monitoring the situation as it unfolds, particularly with the upcoming implementation of Biden's AI Diffusion rules, which could further limit sales to a broader range of countries.

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