Nvidia stock drops after US moves to restrict data center sales to China

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Shares of Nvidia Corp. fell in extended trading on Wednesday after the graphics chip specialist revealed the US government was seeking to restrict its data center operations in China.

In a filing with the Securities and Exchange Commission, Nvidia NVDA,
-2.42%
revealed that the US has installed new licensing requirements for its upcoming A100 and H100 ICs – Nvidia’s top server products – in sales to China and Russia. The filing specifically states that Nvidia’s guidance for the current quarter includes $400 million in data center sales in China that could be impacted by the move; Nvidia does not currently sell products in Russia.

“We are working with our customers in China to satisfy their planned or future purchases with alternative products and may seek licensing when replacements are not sufficient,” an Nvidia spokesperson said in an emailed statement. “The only current products to which the new license requirement applies are A100, H100 and systems such as DGX that include them.”

Nvidia shares fell 6.6% in after-hours trading after the close with a 2.4% drop to $150.94. The stock has fallen 48.7% so far this year amid challenges in its core gaming chip business, while the S&P 500 SPX,
-0.78%
fell 16.4%.

Rival chipmaker Advanced Micro Devices Inc. said on Wednesday that U.S. authorities had also told it to stop exporting its best AI chips to China, according to a Reuters report, but said it did not know. did not expect the restrictions to have a significant effect on its business.

While gaming card sales have plunged in recent months after inventory builds, Nvidia’s business has relied on data center sales. Data center revenue hit $10.6 billion last year, up from $6.7 billion a year earlier, and analysts on average expect server sales to hit $15.79 billion this year, according to FactSet.

Wednesday’s news could harm future business in the data center segment, as Nvidia admitted in the filing that development of the H100 could be affected and that “any future Nvidia ICs achieving both peak performance and Chip-to-chip I/O performance at or above thresholds that are roughly equivalent to the A100, as well as any system that includes these circuits” will face the same requirement.

“The new licensing requirement may impact the company’s ability to complete its H100 development in a timely manner or support existing A100 customers and may require the company to transfer certain operations out of China” , says the SEC filing. “The company is committed to [U.S. government] and requests exemptions for internal company development and support activities.

Nvidia said the new federal licensing requirements are intended to “reduce the risk of covered products being used or diverted to a ‘military end-use’ or ‘military end-user’ in China and Russia.” For years, the United States has taken steps to prevent China’s military from obtaining high-performance semiconductor technology, including blocking acquisitions offered by Chinese parent companies and restricting sales.

Other U.S. server chipmakers also saw their shares decline in after-hours trading on Wednesday, though Nvidia appears to be the company hardest hit by the decision. AMDA®,
-2.38%
shares fell about 4%, while Intel Corp. INTC,
-1.05%
shares fell about 1.5%.

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