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Nvidia faces revenue threat from new U.S. AI chip export curbs, analysts say
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Nvidia faces revenue threat from new U.S. AI chip export curbs, analysts say
Jan 13, 2025 9:34 AM

Jan 13 (Reuters) - Nvidia ( NVDA ) faces a significant

revenue threat due to the latest U.S. export restrictions on

artificial intelligence chips, designed to limit the global

distribution of these coveted processors, analysts and investors

said on Monday.

The regulations, among the strongest yet from the Biden

administration, limit AI chip exports to most countries except

for a select group of close U.S. allies.

They also maintain a block on exports to some countries,

including China, as the U.S. tries to close regulatory loopholes

and prevent Beijing from acquiring advanced chips that could

bolster its military capabilities.

Surging demand for AI chips has catapulted Nvidia ( NVDA ) into the

ranks of the world's most valuable firms, with a market value

exceeding $3 trillion. However, the new restrictions may

complicate its ability to deliver the robust revenue growth that

investors expect.

"These rules will significantly limit (Nvidia's ( NVDA )) market

since as much as half its chips currently end up in countries

that will be off-limits once the rules are applied," said D.A.

Davidson analyst Gil Luria.

Company filings show that Nvidia ( NVDA ) gets about 56% of its

revenue from customers outside the U.S., with China making up

about 17% of sales. Shares of the Santa Clara, California-based

company were down around 2%.

The export curb "threatens to derail innovation and economic

growth worldwide" and would "undermine America's leadership,"

Nvidia ( NVDA ) Vice President of Government Affairs Ned Finkle said.

Finkle argued America's leading role in AI would be hurt

because the rule "would impose bureaucratic control over how

America's leading semiconductors, computers, systems, and even

software are designed and marketed globally."

The rules were also criticized by others including the

Semiconductor Industry Association, a lobbying group which said

the move would force U.S. firms to cede market share to rivals.

"By limiting access to large quantities of advanced

processors, the U.S. is effectively showing the world who's the

boss. However, in doing so, it also threatens to crimp the

earnings potential for many American firms such as Nvidia ( NVDA )," said

Dan Coatsworth, investment analyst at AJ Bell.

Analysts have been raising earnings estimates for Nvidia ( NVDA ),

outpacing its soaring share price growth. The forward

price-to-earnings ratio is now about 31, compared to highs of

over 80 in June 2023.

BIG CLOUD PROVIDERS LIKELY WINNERS

Under the new rules, major cloud providers such as Microsoft ( MSFT )

, Alphabet-owned Google and Amazon.com ( AMZN )

can apply for approval to bypass licensing requirements

for AI chips, allowing them to establish data centers in

countries affected by U.S. chip import restrictions.

As a result, these companies, already established as AI

heavyweights, are likely to increase their market share,

according to analysts.

"We have long viewed these companies as the gatekeepers of

AI, anyway, given their financial ability to continually invest

in next-gen large language models and massive installed bases,"

said CFRA Research analyst Angelo Zino.

"The companies that have access to the most advanced chips

(in this case, the big cloud providers) will have an advantage."

Still, there are uncertainties surrounding the new rules

because they are set to take effect 120 days from publication,

giving the incoming Trump administration time to weigh in.

While the two administrations share similar views on

China's competitive threat, several analysts believe that

President-elect Donald Trump would be more willing to negotiate

deals with individual companies and countries.

"He (Trump) might tinker with the list of allies on the

exemption list, but overall, the move is in step with Trump's

way of thinking," Coatsworth said.

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