Some of Nvidia’s China Business ‘May Be Permanently Impaired,’ Says Analyst.
Bernstein says the U.S. government’s new export restrictions on Nvidia’s high-end AI products to China could have a lasting negative impact on its business.
Bernstein believes the U.S. government’s new export restrictions on Nvidia’s high-end artificial-intelligence products to China could have a lasting negative impact on its business.
Late Wednesday, chip maker Nvidia (ticker: NVDA) said in a filing the U.S. government has informed the company it has imposed a new licensing requirement, effective immediately, covering any exports of Nvidia’s A100 and upcoming H100 products to China, including Hong Kong, and Russia. The government “indicated that the new license requirement will address the risk that the covered products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China and Russia,” the filing said.
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Nvidia’s A100 products are used in data centers for AI, data analytics, and high-performance computing applications, according to the company’s website.
In addition, Nvidia said in Wednesday’s filing, it doesn’t sell any products to Russia, but noted its current outlook for the third fiscal quarter had included about $400 million in potential sales to China that could be affected by the new license requirement.
On Thursday, Bernstein analyst Stacy Rasgon reaffirmed his Outperform rating on Nvidia stock, but lowered his price target to $180 from $210, citing the new requirements from the government.
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The news “is clearly an incremental negative as the business may be permanently impaired,” he wrote. “It feels prudent to take the impacted China revenue out of our Nvidia numbers.”
Nvidia stock is down 10.4% to $135.23 in Thursday trading.
The analyst noted Nvidia is working on possibly selling less-powerful products that could serve the affected customers in China.
Nvidia said in an emailed statement on Wednesday: “We are working with our customers in China to satisfy their planned or future purchases with alternative products and may seek licenses where replacements aren’t sufficient.”
In the report, Rasgon lowered his fiscal 2023 earnings estimate for Nvidia to $3.20 a share from $3.39.
Nvidia’s stock has declined by about 54% so far this year, versus the 35% drop in the iShares Semiconductor ETF (SOXX), which tracks the performance of the ICE Semiconductor Index.
Write to Tae Kim at tae.kim@barrons.com