In a recent turn of events, technology behemoths Nvidia and Advanced Micro Devices (AMD) face potential setbacks as the Biden administration considers expanding restrictions on chip exports to China. Nvidia, heavily reliant on the Chinese market for approximately 20% of its revenue, witnessed a 4.6% decline in premarket trading. Its competitor, AMD, experienced a 3.7% drop.
These two companies dominate the market for chips crucial to the development of generative AI models like ChatGPT. Meanwhile, the Chinese market witnessed a sell-off of AI-related stocks, leading to a 10% decline in Inspur Electronic Information Industry Co. and Unisplendour Corp., major hardware suppliers.
A Determined U.S. Government
The proposed expansion of export curbs highlights the US government’s determination to contain China’s technological rise, potentially escalating tensions between the two nations. Washington is particularly concerned about China’s ambitions in the realm of AI, which could tip the geopolitical balance and disrupt military and scientific advancements. Although this move is expected to impact Nvidia’s and AMD’s business in the world’s second-largest economy, both companies remain at the forefront of the AI development surge, attracting investments from the United States, Europe, and China. Notable entities like Microsoft, Baidu, and OpenAI, the developer of ChatGPT, rely on their products to train the next generation of AI services.
What do the Analysts Think?
While these restrictions on chip exports may temporarily affect chip manufacturers, analysts at Oddo BHF believe it will not alter the long-term roadmap and growth of AI. They assert that any restrictions in China will prompt production shifts to other regions, minimizing the impact on the overall industry. Consequently, equipment manufacturers in the AI sector are deemed a safer bet, enabling investors to circumvent the risks associated with short-term sanctions on chip manufacturers.
Amidst these developments, ASML, the exclusive producer of high-end semiconductor lithography equipment crucial for advanced chip production, witnessed a 1.2% rise in Amsterdam trading. This underscores the significance of the ongoing global chip war and ASML’s role in defining the industry. The restrictions on chip exports would impact Nvidia and AMD, both of which make powerful processors used in A.I. applications.
NVDA, AMD Lower Today After Further Restrictions on Chip Exports to China
More Restrictions?
US officials are contemplating restrictions on chip exports on cloud services leased to Chinese AI companies, which heavily rely on such platforms for model training. The potential implications for cloud service providers like Amazon and Microsoft remain uncertain. However, analysts predict that Chinese AI firms may seek dedicated AI chips from third-party countries, making it difficult for the US to enforce the regulations effectively. The restrictions on chip exports also apply to cloud-based computing solutions.
Nvidia, the world’s most valuable chipmaker, currently holds an 80% market share for data center accelerator chips. The company had been operating under rules that required approval for shipments of specific chip parts to China. To mitigate the financial impact, Nvidia introduced a modified version of the affected chip that complied with the regulations. This adaptation allowed them to continue sales without triggering the export restriction.
