Just days after Nvidia and other chip stocks rallied on news that thee Trump Administration would pause tariffs on chips and electronic goods, the White House has informed the company it would require a special license for exports of its H20 chips. The H20 chips were designed especially for the Chinese market in an effort to comply with U.S. restrictions on chip exports to China. No licenses for shipments into China have ever been granted, given the U.S. government’s concern that the chips could be used to build AI supercomputers in the country, so the new rules are effectively a ban.
Shares of Nvidia closed down 6.87% today, April 16.
Nvidia disclosed that it would take a $5.5 billion hit from the US government’s surprise new controls on its school exports to China. The write-off is so large because there is, essentially, no other market besides China for the H20 chip. Nvidia will essentially have to toss out billions worth of now-unsellable chips rather than simply canceling future orders. “Banning the H20 makes little sense to us,” wrote Bernstein analyst Stacy Rasgon in a note to investors early Wednesday. “H20 performance is low, well below already-available Chinese alternatives; a ban essentially simply hands the Chinese AI market over to Huawei.”
The drop in the shares was exacerbated by the surprise of the announcement. A recent report from NPR said the Trump Administration had backed off its plans to restrict Nvidia’s H20 chips following a dinner with CEO Jensen Huang at Mar-a-Lago. Raymond James analyst Ed Mills wrote in his own note: “The restrictions on H20 chips comes as a surprise, given explicit approval of the product by the Biden administration and recent media reports that the U.S. government was walking back from banning the product.” The news comes after the Trump Administration announced that Nvidia would invest $500 billion to produce AI infrastructure in the United States.
Nvidia rival Advanced Micro Devices (AMD) also dropped Wednesday. The US restriction will also hit its MI308 chip. The company said it will take a charge of as much as $800 million because of the new rule. Shares of AMD closed down 7.35%
