US Export Rule Shake-Up Hits Nvidia Stock
The Biden administration’s updated export rule, aimed at controlling the flow of artificial intelligence to “adversaries” like China, sent Nvidia’s stock (NVDA) tumbling by as much as 3% on Monday. The new rule caps the number of AI chips, known as graphics processing units (GPUs), that can be ordered by most countries without a special license to 50,000.
Aiming to Close Loopholes
The White House stated that the rule is designed to close loopholes in prior export restrictions on AI chips from 2022 and 2023, “by thwarting smuggling” and “raising AI security standards.” The move is seen as a bid to ensure that US technology undergirds global AI use and prevents adversaries from easily abusing advanced AI.
Exemptions and Exceptions
Not all countries will be affected by the new rule. Eighteen US allies, including the UK, Netherlands, and Taiwan, will face no restrictions. Additionally, smaller orders of 1,700 or fewer GPUs will not count toward the export cap. Nvidia’s H20 chips, designed specifically for the Chinese market, will also be exempt from the new rule.
Industry Reaction
Nvidia’s vice president of government affairs, Ned Finkle, criticized the rule, saying it was “drafted in secret and without proper legislative review.” He argued that the rule threatens to stifle competition and innovation, which could ultimately harm America’s technological advantage. The Semiconductor Industry Association echoed Nvidia’s concerns, expressing disappointment at the lack of industry input in the policy shift.
Impact on Nvidia Stock
The updated export rule has added to the pressure on Nvidia’s stock, which has now fallen around 9% over the last five sessions. Bank of America analyst Vivek Arya reiterated his Buy rating on Nvidia stock but noted that the tougher export rule “muddies the waters” for the AI chipmaker. HSBC’s decision to lower its price target on Nvidia shares to $185 from $195 has also contributed to the stock’s decline.
Broader Market Impact
The PHLX Semiconductor (^SOX) index fell on Monday, with Nvidia rivals Advanced Micro Devices (AMD) and Qualcomm (QCOM) experiencing slight declines. Broadcom (AVGO), on the other hand, saw a slight increase. The updated export rule has sparked concerns about the potential impact on the global AI industry and the US’s technological leadership.
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