Nvidia (NVDA) might have an issue selling high-end product to China again after a Wall Street Journal report claimed the US Commerce Department is mulling over restricting export of AI chips to its superpower rival.
It wouldn’t be the first time the government tightens control over the sale of chips to China. Recall, last September, the Biden administration implemented regulations that prevented the semiconductor giant from exporting A100 and H100 chips to Chinese customers without obtaining a license. At the time, the company estimated the potential impact could reach approximately $400 million per quarter. Nvidia found a way round the issue by designing less advanced chips, the A800 and H800, that blunted the impact somewhat.
Morgan Stanley analyst Joseph Moore notes that since the $400 million comments were made, Nvidia’s overall data center business has “roughly doubled,” although he senses that over the period, China has underperformed overall growth. “So maximum impact would be $700-800 million, or below 10% of data center revenue,” he opined, although he believes the actual impact would “likely be smaller.”
It should also be remembered that since September, in the wake of the AI goldrush, global demand for AI has increased significantly and is “much further from being satiated by supply.” In fact, Moore cites conversations with US customers after the news broke, who said they were “excited to take any product that might get repurposed from China.”
In the long run, it is clear constraints on China are a “material limiter.” However, considering that the restrictions seem to be permanently set slightly below the level of the A100, this outcome was expected regardless, due to the “rapid performance increases” of Nvidia’s high-end products, which would remain inaccessible to Chinese clients.
“As a result,” the 5-star analyst summed up, “we would remain quite confident in near term results even in the face of these incremental challenges. Certainly the concern may weigh on the stock in the short term, but the overall tenor of demand remains sharply up and to the right, and we don’t see this as a major disruption.”
All told, then, Moore reiterated an Overweight (i.e., Buy) rating on NVDA shares to go alongside a $500 price target. This indicates a potential growth of ~22% for the stock in the coming year. (To watch Moore’s track record, click here)
Looking at the consensus breakdown, other analysts have also been impressed. Based on 29 Buys, 2 Holds and a single Sell, the word on the Street is that NVDA is a Strong Buy. At $467.35, the average price target implies ~14% upside potential from current levels. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
