The Wall Street Journal reported on Tuesday that the Biden Administration is contemplating new restrictions on exports of artificial intelligence chips to customers in China as early as July, citing sources.
The news caused shares of Nvidia to drop by 4% in premarket trading on Wednesday while Advanced Micro Devices (AMD) fell 3.3%.
Marvell Technology, Applied Materials, Intel, Microchip Technology also fell between 1.1% and 3% on Wednesday, while futures tracking the tech-heavy Nasdaq 100 edged 0.5% lower.
“With an update on export controls now expected, investors will assess just how limiting the new rules will be for chip makers’ sales,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
“A handful of tech companies pack a huge punch on Wall Street due to their sheer size, so any wobble in confidence reverberates on indices.”
Nvidia in the spotlight again
The new restrictions being considered by the Commerce Department would include a ban on the sale of Nvidia’s advanced A800 chip without a special US export licence.
Rising expectations over the advancements in AI has helped Wall Street gains this year, with Nvidia in the pole position on the S&P 500 index with its 187% jump so far this year.
But the sharp rise in shares have also sparked doubts over lofty valuations.
Nvidia is trading at 47 times its expected 12-months earnings, while AMD is at a 31.2 multiple and Intel at 31.8, way above the S&P 500’s multiple at 19, according to Refinitiv data.
The Philadelphia chip index has surged more than 44% so far this year, far ahead of the benchmark index’s 14% rise.
Among other chip stocks, Marvell Technology, Applied Materials, Intel, Microchip Technology fell between 1.1% and 3% on Wednesday.
Across the Atlantic, Nordic Semiconductor, Dutch chipmaker ASML, Milan-listed STMicroelectronics, however, gained between 1.2% and 2%.
Micron and AMD are among the other US chipmakers caught in the crossfire between China and the Biden administration.
In September, Nvidia had said that US officials asked the company to stop exporting two top computing chips for artificial intelligence work to China.
Months later, Jensen Huang-led Nvidia said it will offer a new advanced chip called the A800 in China to meet export control rules. The company also tweaked its flagship H100 chip early this year to comply with regulations.
The Commerce Department did not immediately respond to a Reuters request for comment.
- Reuters with additional editing by Jim Pollard
NOTE: This report was updated with further details on June 28, 2023.