The Trump administration has effectively barred Nvidia from selling its custom artificial intelligence processors to customers in China. The move will force the AI chip leader to write off up to $5.5 billion in inventory and purchase commitments in its fiscal first quarter. Nvidia stock fell Wednesday.
Late Tuesday, Nvidia disclosed in a regulatory filing that the U.S. government is now requiring it to get an export license to sell its H20 processor in China and other restricted countries. Nvidia said it was informed of the move on April 9, the same day NPR erroneously reported that the White House would not seek further restrictions on the chips Nvidia can sell in China.
Nvidia said the U.S. government told it on Monday that the license requirement will be in effect for the indefinite future.
Wall Street analysts say Nvidia's write-off indicates that the company believes it won't be granted licenses to sell H20 processors in China.
The H20 was designed for the Chinese market to comply with Biden-era restrictions on selling advanced processors there. The H20 is less capable than the Blackwell series chips Nvidia sells in the U.S. and other markets.
"With Nvidia writing off associated H20 inventory, it appears the company is taking the position that it will not be granted licenses to ship product to Chinese customers (with no other geography likely to take the governed silicon given the availability of more powerful standard Hopper or Blackwell SKUs)," Wedbush analyst Matt Bryson said in a client note Wednesday. SKU stands for "stock keeping unit," a unique identifier for products used in inventory management.
China represents a little over 10% of Nvidia's revenue, Bryson said. He rates Nvidia stock as outperform with a 12-month price target of 175.
Nvidia Stock Gets Price-Target Cuts
On the stock market today, Nvidia stock sank 6.9% to close at 104.49.
A larger risk for Nvidia is Biden's AI Diffusion rules, Bryson said. Those rules are set to go into effect on May 15 unless the Trump administration intervenes. The AI Diffusion rules would limit Nvidia's ability to sell AI products to a much larger set of countries.
The $5.5 billion charge that Nvidia plans to take to its fiscal Q1 results covers orders that Chinese internet services Alibaba, ByteDance and Tencent had placed for H20 units, Rosenblatt Securities analyst Kevin Cassidy said in a client note Wednesday. Nvidia's fiscal first quarter ends April 27. It will report Q1 results on May 28.
"We see this as basically a ban, given the ongoing tariff war between the U.S. and China," Cassidy said.
Cassidy lowered his price target on Nvidia stock to 200 from 220 but kept his buy rating.
At least four Wall Street analysts cut their price targets on Nvidia stock on the news.
China Sales Loss 'Manageable'
BofA Securities analyst Vivek Arya said the loss of China sales is "manageable" for Nvidia.
Strong sales of Blackwell processors in the U.S. and other unrestricted markets will help offset the loss of the H20 sales, Arya said. Further, gross margins could be enhanced since H20 was a lower-margin product. Arya rates Nvidia stock as buy with a price target of 160.
AMD Also Impacted By China Restrictions
Nvidia rival Advanced Micro Devices said it also will be impacted by the Trump administration's curbs on AI chip sales to China.
In a regulatory filing on Wednesday, AMD said it expects to take a charge of up to $800 million to write off inventory and purchase commitments related to AI chip sales to China.
The chipmaker said the U.S. government is now requiring it to seek licenses to export its MI308 products to China.
AMD said it "expects to apply for licenses but there is no assurance that licenses will be granted."
On Wednesday, AMD stock slid 7.4% to close at 88.29.
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