Nvidia shares fall after US moves to curb data center sales in China

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Shares of Nvidia Corp. retreated in extended trading on Wednesday after the graphics chip specialist disclosed that the US government is seeking to curb its data center operations in China.

In a filing with the Securities and Exchange Commission, Nvidia NVDA,
-2.42%
revealed that the US has installed new license requirements for its A100 and H100 integrated circuits – Nvidia’s highest-performance products for servers – sold in China and Russia. The filing specifically states that Nvidia’s forecast for the current quarter includes expected $400 million in data center sales in China that could be affected by the move. Currently, Nvidia does not sell products in Russia.

“We are working with our customers in China to satisfy their planned or future purchases with alternative products and may seek licenses where replacements are not sufficient,” an Nvidia spokesperson said in an emailed statement. “The only current products subject to the new licensing requirement are the A100, H100 and systems such as the DGX that include them.”

Shares of Nvidia fell 6.6% in after-hours trading, down 2.4% to $150.94. The stock has fallen 48.7% so far this year amid challenges in its core gaming chip business, while the S&P 500 SPX,
-0.78%
has fallen 16.4%.

Rival chipmaker Advanced Micro Devices Inc. said on Wednesday that US officials had also told it to stop exporting its top artificial intelligence chips to China, according to a Reuters report, but said it did not expect the restrictions to have a material impact on its business.

While sales of gaming cards have fallen in recent months after inventory build-up, Nvidia’s business has been built on data center sales. Data center revenue rose to $10.6 billion last year from $6.7 billion a year earlier, and analysts on average expect server sales to reach $15.79 billion this year, according to FactSet.

Wednesday’s news could hurt future data center businesses, as Nvidia admitted in the filing that H100 development could be affected and that “any future Nvidia IC achieves both peak performance and I/O performance chip-to-chip equal to or greater than thresholds roughly equivalent to the A100, and any system that includes these circuits’ will face the same requirement.

“The new license requirement may affect the company’s ability to complete development of the H100 on time or support existing A100 customers and may require the company to relocate certain operations outside of China,” the SEC filing said. “The company deals with [U.S. government] and requests exemptions for the company’s internal development and support activities.”

Nvidia said the federal government’s new license requirements are intended to “address the risk that covered products will be used or diverted to a ‘military end use’ or ‘military end user’ in China and Russia.” The US has for years made moves to prevent China’s military from acquiring high-performance semiconductor technology, including blocking proposed acquisitions by Chinese parent companies and limiting sales.

Other US server chip makers also saw their shares fall in after-hours trading on Wednesday, although Nvidia appeared to be the company most affected by the decision. AMD AMD,
-2.38%
Shares fell about 4%, while Intel Corp. INTC,
-1.05%
Shares fell about 1.5%.

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