The Biden Administration’s decision to implement more stringent restrictions on chip exports to China by addressing existing loopholes (like sourcing through foreign subsidiaries) dragged down stocks of Nvidia (NASDAQ:NVDA) and other chipmakers on Tuesday. Reacting to the expanded chip curbs, Nvidia said that it does not expect a significant impact on its financial results over the near term. Despite the new chip restrictions and fears about macro pressures impacting business, analysts remain bullish on the stock due to the generative artificial intelligence (AI)-induced demand for NVDA’s products and expect further upside even after a 200% year-to-date rally in the stock.
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More Stringent Chip Curbs
Nvidia’s advanced chips, A800 and H800, both of which were modified for the Chinese market to comply with the previous export rules, will be impacted by the latest export regulations. Further, Nvidia said it may be forced to move some of its operations out of one or more countries, as the U.S. has extended the restrictions to more countries other than China.
Following the announcement of the new curbs, Nvidia stated, “Given the strength of demand for our products worldwide, we do not anticipate that the additional restrictions will have a near-term meaningful impact on our financial results.”
While the trade curbs might not have a notable immediate impact on NVDA’s near-term financials, they could weigh on the company’s long-term sales to some extent. Nevertheless, most Wall Street analysts continue to believe in the company’s ability to capture the opportunities created by the generative AI boom through its high-end and innovative offerings beyond the markets where restrictions are imposed.
Analysts Believe in Nvidia’s Solid Long-term Potential
On Tuesday, Mizuho analyst Vijay Rakesh noted that Nvidia expects its A100/H100/A800/H800/L40S and the comparable 4090 graphics processing units (GPUs) to be hit by the new restrictions compared to his expectation of just the data center GPUs being impacted.
Nonetheless, he believes the overall AI demand remains “VERY strong,” offsetting any near-term impact due to the restrictions. He expects NVDA to offset the loss of sales from key products such as A800/H800 with solid global demand for its A100/H100 and a huge AI backlog into next year. That said, he expects bigger challenges in the longer term, given that China constitutes about 20% of AI market demand (as per his estimates).
The extended chip curbs are expected to hurt rivals Advanced Micro Devices’ (NASDAQ:AMD) MI250/MI300 and Intel’s (NASDAQ:INTC) Gaudi2 technology. While Rakesh expects the dollar impact for AMD and Intel to be significantly smaller than Nvidia, he anticipates longer-term challenges for these companies due to the effect of these curbs on their China roadmaps. He added that most of Intel’s Habana Gaudi2 interest is potentially China-based.
Rakesh reiterated a Buy rating on NVDA stock with a price target of $590, which indicates an upside potential of over 34%.
Like Rakesh, KeyBanc analyst John Vinh also maintained his Buy rating on Nvidia with a price target of $750 (nearly 71% upside), though he views the new restrictions as unfavorable for the company. Vinh anticipates the expanded curbs to possibly have a minimal near-term impact on Nvidia based on the company’s ability to replace it with demand from the rest of the world.
That said, he does view the news as negative, as it will be difficult for the company to substitute China demand, which historically accounted for 20% to 25% of NVDA’s data center revenues. Assuming a 20% impact to his $101 billion data center revenue estimate for Fiscal 2025, he projects a potential $20 billion revenue impact and a $5 drag on his $25.62 EPS estimate.
On Tuesday, BMO Capital analyst Ambrish Srivastava also reiterated a Buy rating on NVDA stock with a price target of $600 (36.6% upside potential). He estimates the extended ban to have a 20% impact on his long-term EPS estimate, assuming zero contribution from China to Nvidia’s data center segment in the worst-case scenario. In such a scenario, where the “ban is permanent, long-lasting, and NVIDIA is unable to have a workaround, similar to the last time such a ban was enacted,” Srivastava cautioned that his price target would come down to about $480 from $600.
Is NVDA Stock a Buy Now?
Overall, Nvidia stock earns Wall Street’s Strong Buy consensus rating based on 37 Buys and one Hold. The average price target of $650.53 implies 48% upside potential.
Conclusion
While the expanded chip curbs by the Biden Administration are definitely unfavorable for Nvidia and other chip companies, Wall Street remains bullish on the stock, backed by robust demand for its advanced AI chips, a solid roadmap for its upcoming products, and strong execution.
