In recent news, new regulations have been implemented by the United States on chip exports to China. While the immediate impact on companies like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD) might be minimal, the long-term consequences could be more significant and warrant attention from investors and traders.
The updated rules were introduced to address existing loopholes in previous restrictions laid out in October 2020. These restrictions were aimed at curbing the advancement of advanced artificial intelligence in China due to national security concerns. Both Nvidia and ASML (ASML) have stated that they expect the regulations to have a minimal short-term impact on their financial results. However, it’s important to note that China represents up to 25% of Nvidia’s data center sales, and their A800 and H800 chips, specifically designed for the Chinese market, are now on the no-go list. This could potentially affect not only Nvidia but also AMD and Intel (NASDAQ:INTC) to some extent.
Looking ahead, it’s possible that some companies may face challenges as these regulations are more restrictive than initially anticipated. The introduction of new workarounds is expected, and a decrease in revenue could impact investment opportunities. This situation could potentially open the door for China to fill the gap, although the US government aims to strike a balance between sales and safeguarding its interests.
According to IDC vice president Mario Morales, the US government’s goal is not to restrict everything but rather to have control over each transaction. It’s worth noting that major US and European companies are highly dependent on Chinese markets, and overly strict restrictions could hinder their growth.
Potential Minimal Impact on Financial Results
At present, both Nvidia and ASML have indicated that they do not expect a significant near-term impact on their financial results. However, it’s important to consider the complexities of these regulations and the potential implications they may have on certain aspects of their businesses.
Nvidia, one of the major players in the industry, reassured investors by stating they comply with all applicable regulations and expect a limited impact on their financial results due to the high demand for their products worldwide. ASML, a company specializing in extreme ultraviolet technology tools, mentioned that the new regulations might impact the regional split of their system sales in the medium to long term, but they do not foresee a material impact on their financial outlook for 2023 and beyond. However, both companies acknowledged the need for further clarification regarding the regulations.
UBS, a leading financial services provider, estimated that the new rules could account for approximately 7% to 10% of Nvidia’s data center revenue this year. However, they believe that the demand for Nvidia’s products will continue to exceed supply until at least the second half of 2024, which could mitigate the near-term impact on revenue. Nonetheless, the regulations may affect Nvidia’s longer-term total addressable market.
Despite the news of the regulations, Morgan Stanley maintained Nvidia as a top pick and stated that the impact is likely to be minimal and take time to fully assess. Bank of America suggested that Nvidia’s L4 and L40S inference GPUs, unveiled in March, might be exempt from the restrictions, but further details are needed. The rules could also potentially impact AMD’s ability to ship its MI300 series, set to launch in the fourth quarter, and Intel’s accelerator portfolio.
Wolfe Research, a leading research firm, emphasized the importance of understanding whether Nvidia can modify their existing A100 and H100 chips to comply with the new rules. Additionally, they raised questions about the performance density threshold rule, which might affect the sales of lower-end chips. These uncertainties require input from Nvidia management to provide clarity.
Conclusion
While the immediate impact of the US-China regulations on companies like Nvidia, AMD, and ASML might be relatively small, it is crucial for investors and traders to consider the potential long-term effects. These regulations could have implications for revenue, investment, and market share in China. As the situation unfolds, further clarification is needed to fully assess the impact on these companies. It remains to be seen how they will adapt to these regulations while continuing to meet the demands of a competitive and changing market.
