US Restriction On Nvidia, AMD Selling Chips To China Poses Structural Risk For Semiconductor Industry, Analyst Says

Zinger Key Points
  • Investors are worried about potential expansion of chip export restriction to China.
  • Supply chain could benefit in short term if Chinese companies decide to build inventories.

The stock price of Nvidia Corporation NVDA tanked on Thursday in response to the U.S. government’s decision to impose license restrictions on AI chip exports to China

Expert Take: TFI Securities analyst Ming-Chi Kuo said the government’s move will ensure that the U.S. maintains its leadership position in the field of AI. However, the analyst noted that China was the frontrunner in terms of AI patent filings.

The affected chips, the H100 and A100 from Nvidia and Advanced Micro Devices, Inc. AMD, respectively, are produced by the advanced nodes of Taiwan Semiconductor Manufacturing Co. Ltd TSM.

According to Kuo, AI development is one of the core competitiveness of a country, and it has applications in aerospace and the military, among other things.

See also: EXCLUSIVE: Why Nvidia Could See '$2-Billion Hit In 2023' From US Crackdown On China Chip Exports

The sales restriction will have a limited impact on suppliers such as TSMC, said Kuo. However, investors are concerned about the possibility of the U.S. potentially imposing additional restrictions on more chips, which might have an impact on more server-related or other products, he added.

“The uncertainty could be a structural risk for the semiconductor sector,” the analyst said.

Kuo said Chinese clients may directly or indirectly place “rush orders” to boost inventory in order to lower the risk associated with the possible expansion of sales restrictions by the U.S. government.

“If so, that might benefit supply chain utilization rates in the short term.”

Price Action: Nvidia closed Thursday’s session down 7.67% at $139.37, according to Benzinga Pro data.

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