Wall Street is sticking with an AI darling despite fresh concerns about demand from key market China.
Shares of graphics chipmaker Nvidia fell about 2% in Wednesday trading after reports that the US is planning to impose new curbs on shipments of AI chips to China. Nvidia was among the top trending tickers on the Yahoo Finance platform.
AMD stock traded down around 1.5% in sympathy. The company recently unveiled its own set of AI chips to take aim at Nvidia’s dominance (more on those chips above from a chat with AMD CEO Dr. Lisa Su).
The reports say the export curb could begin in July.
Nvidia stock has exploded 186% year to date — taking its market cap to above $1 trillion — as it has assumed a pole position in the development of next-generation chips that support generative AI. Just this week, the company inked another deal for its powerful AI chips with cloud services provider Snowflake.
Nvidia’s chips already fuel the tech behind OpenAI’s ChatGPT and Alphabet’s Bard chatbots.
Here is Wall Street’s early vibe on how an export ban may impact high-flying shares of Nvidia.
- “Obviously we will have to await more clarity from the DOC (as soon as early July), but in the meantime we do not believe this derails the bull thesis given AI’s global proliferation and NVDA’s positioning as the key enabler. Our best guess on DC Domestic China exposure is likely ~10-15%+/- of revenue (given expected impact with A100 ban, overall company China exposure looking back [noting gaming has been ~25% China], and recognition of the meaningful uplift from US hyperscalers through the year) – and we note that third party sources have estimated H800 accounting for ~5% of CY23 units (we think implying 5-10% of revenues given higher ASP). Overall, with a more targeted approach to restrictions and NVDA’s proven agility, we do not expect this to be a big deal for NVDA.” — EvercoreISI analyst C.J. Muse
- “Reuters reported after the market close today that Commerce Department is considering new restrictions on exports of AI chips by Nvidia and other chip makers to China including Nvidia’s A800 chips which met export control requirements last year. While Nvidia talked about a $400M impact from US restrictions last year and has not updated China data center exposure this year, we believe the China AI demand has likely increased this year from gen AI adoption. We estimate China data center sales in the 5-10% range of total $30B data center sales this year. We note that Nvidia’s next public opportunity to comment on this topic would likely be on the 9am PT webcast tomorrow where the CFO and SVP of networking will present and discuss the topic of “Networks for AI”. Overall, we believe AI demand will exceed supply this year and Nvidia can move its chips around. Maintain Buy.” — Citi’s Atif Malik
- “With shipments of Data Center products to Chinese customers accounting for ~15% of Nvidia’s segment revenue or ~10% of total company revenue, per our estimates (note Nvidia does not report segment/regional revenue to this level of granularity), the stock may come under pressure in the near-term. That said, we continue to expect consistent outperformance from NVDA over the medium to long term, given the significant growth opportunity set available to the company outside of China across cloud service providers, consumer internet companies, and other/general enterprises. We maintain our Buy rating and would view any dislocation in the stock as an opportunity to add to positions.” — Goldman Sachs’ Toshiya Hari