Key Points
- Broader declines in semiconductor stocks after rate cut expectations diminished.
- Biden administration plans stricter export controls on AI chips, targeting China and Russia.
- Critics argue the restrictions could harm U.S. competitiveness and open markets to foreign rivals.
- Nvidia’s stock was volatile last week after CES announcements and economic data. Bank of America maintains a Buy rating on Nvidia.
Nvidia’s stock experienced a sharp decline on Friday, falling as much as 4%. This was accompanied by a broader drop in semiconductor stocks following a December jobs report that dampened hopes for imminent Federal Reserve rate cuts. At 12:41 PM ET (5:41 PM GMT), Nvidia (NASDAQ:NVDA) declined by 2.67% or 3.74 to 136.37 USD, Advanced Micro Devices (NASDAQ:AMD) also fell by 5.46% or 6.65 to 115.18 USD, while the PHLX Semiconductor index dropped by 2.55% or 131.40 to 5,030.95.
Adding to the pressure, the Biden administration is preparing to announce stricter export controls on AI chips to specific countries, including China and Russia, to limit adversaries’ development of advanced artificial intelligence. According to Bloomberg, these new rules aim to curtail the export of chips like Nvidia’s AI GPUs, which are widely used in data centers.
China, which accounts for up to 40% of Nvidia’s chip sales, lacks access to the advanced EUV lithography technology needed to manufacture its own AI chips domestically. While restrictions have been in place, reports suggest advanced Nvidia chips have still reached China through third-party resellers, potentially exposing a significant portion of Nvidia’s revenue to risk. DA Davidson analyst Gil Luria emphasized the potential financial impact if Nvidia is held accountable for the end-use of its chips.
Nvidia’s vice president of global affairs, Ned Finkle, criticized the proposed restrictions, arguing they would harm the U.S. economy, weaken global competitiveness, and benefit adversaries. Similarly, the Information Technology & Innovation Foundation expressed concerns that limiting U.S. AI chip exports would open the market to foreign competitors, potentially undermining the country’s technological leadership.
Nvidia’s stock volatility follows announcements at the CES trade show earlier this week. Despite reaching a record high on Monday, the stock fell over 6% on Tuesday and extended its decline by Friday. Analysts at Bank of America noted tepid demand for consumer AI devices, while a Goldman Sachs downgrade of AMD added pressure on the semiconductor sector.
Bank of America analyst Vivek Arya predicts continued volatility for Nvidia leading up to its February 26 earnings report. However, Arya maintained a positive outlook, citing robust demand in other markets that could offset potential revenue declines from China.
