Nvidia has options to mitigate U.S. government restrictions on China chip sales

3 yıl önce

Nvidia (NVDA) shares dropped more than 10% in Thursday's session, the day after the semiconductor and artificial intelligence company said an 8-K securities filing that the U.S. government has imposed new license requirements for future exports of its A100 products and upcoming H100 integrated circuits to China and Russia to address the risk that these products could be used in or diverted to military end use. Nvidia does not sell into Russia, anyway. Nvidia said that of its $5.9 billion revenue guidance for the current quarter, approximately $400 million of that figure was for potential sales in China, which may be subject to the new license requirement if customers do not want to purchase the company's alternative products or if the U.S. government does not grant licenses or denies licenses. This $400 million headwind represents about 7% of the company's quarterly sales and about 10% of the estimated Data Center revenues. Nvidia also said Wednesday night that the new license requirement may impact its ability to complete the development of its new H100 GPU (graphic processing unit) in a timely matter or support existing A100 customers. However, the company announced an important follow up Thursday morning. Nvidia said the U.S. government has authorized, exports, re-exports, and in-country transfers needed to continue its development of H100 integrated circuits. This is good news because Wednesday night we feared a delay in Nvidia's upcoming launch. The Club's take: The news represents an unforeseen setback for Nvidia and comes at a time when the company has twice issued lower than anticipated revenue guidance â first, due to the lockdowns in China and now more recently due to the Gaming chip glut and slowing spending patterns of its Data Center chips in China. In a complete downside scenario where the company in unable to recover any of these restricted China sales, our quick and dirty assessment of the impact is as follows: If you annualize the $400 million of lost revenues and multiply it by the stock's fiscal year 2023 price-to-sales multiple of 13.3x, you get about $21.3 billion. If we divide this amount into Nvidia's market cap at Wednesday's close of approximately $377 billion, the hit is about 5.6%. Now, we think it is possible that a full $400 million quarterly hit would be a draconian scenario. There are a few different ways Nvidia can mitigate this risk. The easiest is path is if Nvidia's customers are willing to buy alternative products like old data center chips that are less powerful. Next, we think it is possible that Nvidia develops specialized products that come in below the indicated performance threshold. Think of this as something similar to what the company did to restrict crypto mining on its gaming GPUs. Third, Nvidia is working with the government to obtain licenses for customers whose end markets are not military. Outside of the numbers, a new wrinkle from this news is that investors may shy away from the semiconductor group for some time due to fears of escalating tensions between the United States and China. This will put an overhang on the entire semiconductor group. As for our other semis, Advanced Micro Devices (AMD) received a similar restriction from the U.S. government. But the AMD said Wednesday it does not believe it will see a material impact from the government restrictions. To us, this leads us to believe the revenue impact is much less than 5% of total company sales.Â We have not heard public comment from Marvell Technology (MRVL) and Qualcomm (QCOM) but we think both companies are not in the crosshairs of these new restrictions. For the semiconductor stocks Thursday, we will not be adding to our positions into weakness. (We made a small Nvidia buy Wednesday in an overbought market ahead of this news). We are waiting for more clarity around the new restrictions and we must respect how this overhang means the group can still go lower from here. Although more downside is likely, we continue to take a long-term approach to this tough group due to the secular growth nature of their end markets and we believe this patience will be rewarded once inventory levels finish their corrections. (Jim Cramer's Charitable Trust is long NVDA, AMD, MRVL and QCOM. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Nvidia CEO Jen-Hsun Huang at the Consumer Elctronics Show (CES) in Las Vegas, USA, 04 January 2017. Huang announced that his company would collaborate with the German car company Audi in future.

Andrej Sokolow | Picture Alliance | Getty Images