U.S. chip regulations escalate, Wall Street worries, Nvidia target price lowered

The stock prices of the three major U.S. chip giants: NVIDIA (NVDA.US), AMD (AMD.US) and Intel (INTC.US) continued to fall before the U.S. stock market opened on Wednesday. Major Wall Street investment institutions are currently weighing the Biden administration's upgrade of new export controls on China's export of AI-related chips, as well as the impact of updated semiconductor manufacturing equipment export control rules on equipment manufacturers such as ASML (ASML.US). Most Wall Street institutions have expressed some form of concern.

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On Tuesday, after the United States announced a comprehensive update of export control regulations for artificial intelligence chips, chip stocks in the U.S. stock market fell across the board. The Philadelphia Semiconductor Index, which can be called the "global chip stock benchmark", once fell by more than 3% during the session. A senior U.S. official said that the latest ban targets high-performance chips in the AI ​​field such as Nvidia's A800 and H800. As the media reported earlier, the new rules also require companies to notify the U.S. government before selling chips that fall below control thresholds. The U.S. Department of Commerce stated that the new regulations will focus more on computing power, which will control the export of more chips, including Nvidia’s special edition GPUs. In terms of computing power, the U.S. Department of Commerce canceled the “bandwidth parameter” this time and replaced it with “performance density.”

According to the new regulations, affected Nvidia chips include but are not limited to A100, A800, H100, H800, L40 and L40S, and even RTX4090 requires additional licensing requirements. Now all that remains seems to be the NVIDIA V100. According to the chip parameters, the chip communication rate is 300GB/s, and the maximum operating speed is 125TFLOPS. In addition, any system that integrates one or more covered integrated circuits (including but not limited to DGX and HGX systems) is also covered by the new licensing requirements.

Under the new rules, revised export controls prohibit the sale to Chinese companies of data center chips running at 300TFLOPS (one trillion operations per second) and above. Chips with speeds of 150-300TFLOPS will be banned from sale if their "performance density" is 370GFLOPS (giga operations per second) per square millimeter or higher. Chips that run at the above speeds but with lower performance density fall into a "gray area" defined by the U.S. Department of Commerce, meaning sales to China must be reported to the U.S. government.

As mentioned above, after the United States escalated its sanctions on Chinese chips, most Wall Street institutions expressed some form of concern about U.S. chip stocks, especially Nvidia, the highest market value chip stock with a market capitalization of trillions.

Analysts from Citigroup said they believe the new threshold range set by the Biden administration will make it difficult for Nvidia to sell high-performance GPU products to the Chinese market, because it will require a wider range of performance parameter modifications to the two "castrated versions" of GPU products, the A800 and H800, which were previously unregulated.

therefore,Although Citigroup continues to maintain a "buy" rating on Nvidia stock, it lowered its target price from $630 to $575. The agency said that the risk of Nvidia's performance expectations for fiscal 2025 and 2026 has increased.

Morgan Stanley analysts led by Joseph Moore also quickly lowered the agency's target stock price for Nvidia (slightly lowered from $630 to $600), noting that the initial interpretation of the sanctions "looks more harsh than expected."

"While tighter export controls were widely expected given recent news reports, in our view, the reality is harsher than expected and the extent of the stock selloff appears to be justified," the analysts wrote. "We had expected stricter export norms, but in the gray zone, extensive licensing requirements have created greater scale uncertainty in an area that accounts for 20-25% of demand."

Morgan Stanley analysts added that in recent months, Nvidia has reduced the production scale of its A800 and H800 products to focus on other demand-growing regions, and if allowed, China may seek lower-performance alternatives.

KeyBanc Capital Markets analysts led by John Vinh are relatively less pessimistic, but still point out that the upgraded export controls will have a "negative" impact in the long term.

"We believe the impact of this development on Nvidia (in the short term) is likely to be limited, as it should be able to respond by meeting demand from the rest of the world," the analysts wrote. "However, from a longer-term perspective, we view this as a significant negative as demand from China, which historically accounts for 20-25% of Nvidia's data center revenue, will ultimately be difficult to meet."

Several other analysts also pointed out that the new export controls may also have a certain impact on chip companies such as AMD and Intel (Intel), especially AMD's MI300 series of AI chips and some of Intel's high-performance accelerator product portfolio, including Gaudi and FalconShores product lines.

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