On Thursday, shares of Nvidia (NASDAQ:NVDA) dropped by as much as 11.1%. The stock price had fallen 10.9% as of 11:13 a.m. ET.
A federal government rule prohibiting chip shipments to China and Russia served as the spark that sent the semiconductor specialist tumbling.
What’s the Reason?
In a regulatory filing published late Wednesday, Nvidia (NASDAQ:NVDA) disclosed the new licensing requirement imposed by the U.S. government on the company’s high-end chips used for AI systems and data centers. The rule applies immediately to exports to China and Russia.
According to Nvidia (NASDAQ:NVDA), the new licensing requirement is limited to sales of its processors in China because the business “does not sell products to clients in Russia.” That means the company will have to apply for special clearance to sell its high-end processors to Chinese enterprises, but “no promise that the USG [U.S. government] would give any exemptions or licenses for any customer, or that the USG will act on them promptly.”
The new limitation was implemented to counter China’s growing concern that the banned materials would be diverted to the country’s military or utilized for other non-civilian reasons.
These limitations include the A100 Tensor Core GPU, the upcoming H100 CPUs from Nvidia, and any integrated systems using these chips, such as Nvidia’s DGX AI “supercomputer-in-a-box.” Artificial intelligence (AI), HPC, and data center operations are just some places where these semiconductors are used.
For its Chinese clients, Nvidia (NASDAQ:NVDA) is “trying to meet their planned or future purchases of the business’s data center goods with products not subject to the new licensing requirement,” the company stated.
Since the new restrictions would affect prospective sales of almost $400 million, management revised its forecast for the current quarter.
Nvidia’s sales for the fiscal 2023 third quarter (ending July 31) had already slowed significantly due to sluggish demand for its gaming chips, so this news comes at the worst possible time. The data center industry led the way, with year-over-year growth of 61%.
Nvidia (NASDAQ:NVDA), however, has weathered worse, and this most recent event will amount to nothing more than a blip on the company’s long-term radar.
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