Shares of Nvidia were under pressure as investors weigh the impact of potential new restrictions on exports of AI chips to China, but Wall Street is still upbeat on the stock. By Wednesday the stock was down by about 1% following a report from the Wall Street Journal that the Biden administration is considering further restricting sales of chips made by Nvidia and others, including Nvidia’s A800 chips, which were specifically designed for China after a prior round of restrictions. Several analysts are projecting that China could be between 10% and 15% of Nvidia’s data center revenue this year. For Bank of America that range falls to between 7% and 10%. The chipmaker reported $1.59 billion of revenue from China, including Hong Kong, in the first quarter of its fiscal 2024, accounting for about 22% of its total revenue, according to the company. While the stock may be under pressure in the near term, “we continue to expect consistent outperformance from NVDA over the medium to long term, given the significant growth opportunity set available to the company outside of China,” Goldman Sachs analyst Toshiya Hari said in a note Wednesday, citing opportunities across cloud service providers, consumer internet companies, and other/general enterprises. “We maintain our Buy rating and would view any dislocation in the stock as an opportunity to add to positions,” he added. “We do not believe this derails the bull thesis given AI’s global proliferation and NVDA’s positioning as the key enabler,” Evercore ISI’s Matthew Prisco wrote in a note. “With a more targeted approach to restrictions and NVDA’s proven agility, we do not expect this to be a big deal for NVDA.” Evercore ISI maintained its outperform rating on the stock and called the news “a little speed bump on the AI highway.” In the near term, Nvidia should be able to ship current backlog, the Prisco said the Tuesday note. Additionally, the company should be able to mute any headwind based on “flexibility in chip structure” as it proved when it created the A800 as an advanced chip for China that adheres to the U.S. export restrictions that came to light last summer. NVDA YTD mountain Nvidia year-to-date Citi analysts also said they believe AI demand will exceed supply this year and that Nvidia “can move its chips around.” Bank of America said strength from U.S. hyperscale customers “could soak up any additional product availability” and that ultimately China will probably represent less than 10% of what it sees as a more than $100 billion total addressable market for AI-related accelerator hardware. –With reporting by Michael Bloom
