Nvidia (NVDA) Stock Plunges after Reports US Could Expand Restrictions on Chip Exports to China

Nvidia Corp (NASDAQ: NVDA) stock fell in after-hours trading following news that the US could seal loopholes currently applied to selling powerful artificial intelligence (AI) chips to China. In reaction to the news, NVDA fell 3.2% in New York after-hours trading.

Currently trading at $406.14 according to data from MarketWatch, NVDA closed at $418.76 after climbing 3.06% on the day. However, the loss has erased gains Nvidia stock took on during regular trading. According to a Bloomberg report, China contributes nearly a fifth of Nvidia’s revenue. The company’s earnings could suffer a big blow if Washington does follow through with blocking these loopholes.

The news also affected Nvidia rival Advanced Micro Devices Inc (AMD) (NASDAQ: AMD), which lost nearly 3%. Both American chipmakers will likely suffer significantly from Washington’s proposed ban.

The United States and China have had a fairly antagonistic relationship for some time. Washington seems bent on stifling China’s tech development as tensions fester between the two giant nations. Following the rise of OpenAI’s ChatGPT, several tech giants worldwide are making heavy strides in AI and sinking billions worth of investments.

For instance, this month, China’s Alibaba Cloud began rolling out Tongyi Qianwen, an AI large-language model (LLM) set to rival ChatGPT. Alibaba intends to integrate the LLM into Tongyi Tingwu, an AI assistant that offers multimedia content analysis. However, outside of individual companies in China, the government is likely throwing its full weight behind AI advancement. The US seems worried that China could advance AI for scientific and military purposes in their favor. Consequently, the Biden administration will likely do all it can to stem AI advancement in China.

Nvidia Stock May Fall Lower as the US Mulls Extension of Chip Ban

Last year, the US introduced license requirements on advanced chips Nvidia ships to China. According to a regulatory filing, Nvidia needs a license to sell specific chips to China and Russia. Although Nvidia does not ship to Russia, the company said the new rule could shrink its quarterly sales by up to $400 million.

In response, Nvidia reconfigured the popular A100 chip, downgrading it to the A800. While the former’s processing rate was 600 gigabytes per second, the A800 was reduced to 400 gigabytes per second. This reconfiguration aligned with the Commerce Department’s restriction on shipping 600 GB chips to China. Now, the US is also considering expanding the rule to ban chips that process lower speeds.

At the moment, there is no official word from the Commerce Department or other US authorities on new restrictions. The US will likely wait until after Treasury Secretary Janet Yellen makes a planned visit to China in July, according to a source referenced in a Wall Street Journal report. Any increased restrictions before the visit could further degenerate the relationship between both countries. Nevertheless, Nvidia stock could plunge further if the company loses more revenue to expanded restrictions on China shipments.