Nvidia stock fell for a second day as investors digest new U.S. export controls that will affect the chip maker’s sales to China. While analysts agree the rules aren’t likely to be a near-term drag on the company, the outlook is worse in the longer term—and that could hurt the shares.
Nvidia (ticker: NVDA) stock dropped 4% on Wednesday, building on a 4.7% slide on Tuesday.
The factor hitting shares of the chip maker, which dominates in artificial intelligence, is further restrictions on the export of chips used in AI applications. It makes sense because an investor frenzy over AI has sent Nvidia stock up 200% this year.
The Commerce Department said Tuesday that it was updating its restrictions, tightening rules announced in 2022 that target China’s access to advanced technology. Now, exports of the most high-tech chips, such as those developed by Nvidia, will be banned without a license. Exports of semiconductors just below that threshold will require government notification that could be followed by a ban.
Companies wishing to export chips just below that threshold will have to notify the government, which could then ban individual sales.
“Given the strength of demand for our products worldwide, we do not anticipate that the additional restrictions will have a near-term meaningful impact on our financial results,” Nvidia said in filings with the Securities and Exchange Commission late Tuesday.
Analysts are more cautious on the long term—especially considering that China accounts for some 20% of revenue flowing to Nvidia’s data center business, which encompasses much of its dominance in AI.
“We are de-risking our FY25/26 estimates and assume low likelihood of U.S. government granting export licenses,” Citi analyst Atif Malik wrote in a research note. He slashed his price target on Nvidia stock to $575 from $630, but continued to rate the shares at Buy, citing “secular AI growth which remains in early innings.”
When U.S. export controls went into place last year, Nvidia was able to make a lower-performance chip for the Chinese market. Could it do the same this time?
“Our assumption is that Nvidia will quickly redesign a chip to meet new standards with relatively immaterial disruptions to the current business outlook,” Piper Sandler analyst Harsh Kumar wrote in a note, maintaining his Overweight rating and $620 price target.
But Citi’s Malik is less certain.
“We believe the scope of the new performance density thresholds will make it difficult for Nvidia to sell to China as it will require more than the networking modifications it made on prior [China products],” he said.
In the past, investors have remained optimistic in the face of U.S. chip-export controls and despite speculation about this week’s move. The logic is that global demand for chips that can power AI applications is so strong that Nvidia can overcome its hit to sales from China. But that may be discounting just how important the China market is, and will be, for longer-term growth.
“We see this development as negative long-term for Nvidia, as it will ultimately be difficult to backfill China demand,” KeyBanc Capital Markets analyst John Vinh wrote in a note. “Assuming a 20% impact to our $101 billion data center estimate for FY25, this would potentially present a ~$20 billion headwind and negatively impact our $25.62 earnings per share estimate by ~$5.”
Fellow chip makers likely to be affected were also suffering. Intel (INTC) stock fell 1.4% on Tuesday and was down a further 1.2% on Wednesday.