David Becker/Getty Images News
New U.S. regulations on chip exports to China are unlikely to have much of a short-term impact on companies like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD). Details are still murky and in the long-run, the picture might be quite different.
The updated rules issued this week address loopholes in the original restrictions laid out last October to curb the evolution of advanced artificial intelligence in China on national security concerns. Nvidia (NVDA) and ASML (ASML) said the regulations will have a minimal short-term impact on results. However, China represents up to 25% of data center sales for Nvidia (NVDA) and its chips made for the market — specifically the A800 and H800 — are now on the no-go list. AMD (AMD) and Intel (NASDAQ:INTC) may also see an impact, analysts said.
Over the long-term, some companies may feel the heat with analysts saying the curbs are more draconian than expected and new workarounds will likely be pursued. A drop in revenue could curb investment, leaving a spot for China to possibly fill, though the U.S. is trying to find an equilibrium between permitting sales and guarding its interests.
“The U.S. government doesn’t just want to say no on everything, but they want to be able to police every single transaction that they can,” IDC vice president Mario Morales said in a phone interview.
Big U.S. and European companies are dependent on China, he added. “You can’t put so many restrictions that you also stifle the growth of the multinational companies that are still the dominant leaders in China.”
Little impact
Nvidia said it doesn’t expect a meaningful near-term impact.
“We comply with all applicable regulations while working to provide products that support thousands of applications,” an Nvidia spokesperson told Seeking Alpha. “Given the demand worldwide for our products, we don’t expect a near-term meaningful impact on our financial results.”
ASML (ASML), which makes extreme ultraviolet technology tools, said given the complexity of the regulations, it will need to carefully assess implications.
“It is our understanding that the new regulations will be applicable to a limited number of fabs in China related to advanced semiconductor manufacturing,” the Netherlands-based company said in a statement.
“These export control measures will likely have an impact on the regional split of our systems sales in the medium to long term.””
They shouldn’t have a material impact on the financial outlook for 2023 and for longer-term scenarios for 2025 and 2030.
ASML said it is seeking further clarification on the regulations.
UBS said that while Nvidia (NVDA) indicated that China is 20% to 25% of its data center revenue, that includes networking and lower-end GPUs still permitted to ship under the rule.
“All things equal, these new rules account for 7% to 10% of data center revenue (or ~6-8% of total revenue this year),” UBS said. “Because we think demand will continue to significantly exceed supply until [the second-half of 2024] at the absolute earliest, we do not expect this to have a material impact on near-term revenue. It will, however, have some impact on NVDA’s longer-term [total addressable market].”
Morgan Stanley maintained Nvidia (NVDA) as a top pick amid the news.
“Our immediate take is that it is a clarification of prior rules and a modest tightening that is likely to have minimal incremental impact – though it will likely take time to fully assess,” the firm said.
Bank of America said Nvidia’s (NVDA) new L4 and L40S inference GPUs, unveiled in March, could avoid restrictions, but additional details are needed. The rules may also impact AMD’s ability to ship its MI300 series (slated to launch in the fourth quarter) and Intel’s (INTC) accelerator portfolio.
Wolfe Research said in the medium- to long-term, it’s important to know whether Nvidia can modify its existing A100 and H100 chips further to make a product that complies with the new rules.
Wolfe added that it’s unclear as to the performance density threshold rule which could preclude sales of lower-end chips, like the L40S. “These are questions that we don’t believe can be answered without input from NVDA management.”
