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Chipmakers Brace For Impact As US Mulls New Chip Export Restrictions To China

Could this end AI stock rally?

The U.S. government is contemplating new restrictions on the export of AI chips to China in an effort to limit China’s technological advancements and contain its rising influence.

The ban, which may go into effect as soon as next month, would prevent Nvidia Corp. (NASDAQ:NVDA) and other chipmakers from shipping their products to clients in China and other nations of concern without a license, according to a report published by the Wall Street Journal on Wednesday.

Premarket Reactions

Shares of U.S. chipmakers experienced steep declines in the premarket, with Nvidia Corp. down 3.5%, Advanced Micro Devices Inc. (NASDAQ:AMD) down 3%, Marvell Technology, Inc. (NASDAQ:MRVL) down 2.7% and ON Semiconductor Corp. (NASDAQ:ON) down 1.9%.

Other large-cap semiconductor stocks were also in the red, with Broadcom Inc. (NASDAQ:AVGO) down 1.2%, Intel Corp. (NASDAQ:INTC) down 1.1%, ASML Holdings (NASDAQ:AMSL) down 0.9% and Texas Instrument Inc. (NASDAQ:TXN) down 0.8%.

Due to their significant exposure to semiconductors and chipmakers, the VanEck Semiconductor ETF (NYSE:SMH), Global X Robotics & Artificial Intelligence ETF (NYSE:BOTZ), and Pacer Data and Digital Revolution ETF (NYSE:TRFK) are among the exchange-traded funds predicted to see a volatile session on Wednesday.

Microchip and Nvidia logo displayed on a phone screen are seen in this multiple exposure illustration photo taken in Krakow, Poland, on April 10, 2023. (JAKUB PORZYCKI/NurPhoto via Getty Images)

Nvidia Underperforms Due to Its Larger Exposure To China

Just a month ago, Nvidia’s CEO, Jensen Huang, expressed concern about the “enormous damage” to the U.S. IT industry from the escalating dispute over chips between Washington and Beijing. “If [China] can’t buy from… the United States, they’ll just build it themselves,” he said.


TAIPEI, TAIWAN – 2023/06/01: Jensen Huang, President of NVIDIA at supermicro keynote during the COMPUTEX 2023. The COMPUTEX 2023 runs from 30 May to 02 June 2023 and gathers over 1,000 exhibitors from 26 different countries with 3000 booths to display their latest products and to sign orders with foreign buyers. (Photo by WALID BERRAZEG/SOPA Images/LightRocket via Getty Images) 

Nvidia has a high exposure to China due to the fact that China and Hong Kong contributed about 25%, or $7.1 billion, to the chipmaker’s total sales in fiscal year 2022. An additional $8.5 billion in sales came from Taiwan, which is not subject to similar export restrictions but is nonetheless caught in the middle of the escalating tensions between the United States and China.

Cloud Services Could Be The Next In Line

The U.S. government is beginning to view artificial intelligence from a national security perspective.

In addition to limits on the export of AI chips, the United States is considering limiting the leasing of cloud services to Chinese AI companies. Chinese AI companies have found the platforms offered by large cloud service providers like Inc. (NASDAQ:AMZN) and Microsoft Corp. (NASDAQ:MSFT) to be indispensable in the process of model training.

The proposed ban is meant to protect national security interests and address concerns about technology transfers.

A person familiar with the matter reached by the WSJ has said that while the administration has not yet decided when to implement the regulation, it is likely to wait until after Treasury Secretary Janet Yellen‘s trip to China in early July.

Produced in association with Benzinga

Edited by Joseph Donald Gunderson and Kyana Jeanin Rubinfeld

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