The AI chip maker will factor in a $5.5 billion charge into Q1 earnings
NVIDIA (NASDAQ:NVDA) stock was tanking on Wednesday, down about 6% in morning trading after bad news related to the U.S.-China trade war.
In an SEC filing posted Tuesday, NVIDIA officials said the company was informed by the U.S. government that it needs a license for export H20 chips to China, including Hong Kong and Macau, and D:5 countries. The H20 chips are the AI chips that NVIDIA markets and sells in China.
U.S. officials informed NVIDIA that the license requirement will be in effect for the indefinite future.
Because of this, NVIDIA is factoring into its fiscal first quarter earnings approximately $5.5 billion in charges associated with H20 products for inventory, purchase commitments, and related reserves.
NVIDIA generates about 10% of its revenue from China, said Wedbush analyst Matt Bryson, so the H20 restrictions could result in a significant revenue reduction. Bryson suggested that it could even be even higher than 10% Q1 due to an uptick in demand to support Deepseek inference instances.
Wedbush believes NVIDIA revenue could take a 10% in future quarters, based on the assumption that it will not be granted licenses to ship products to China, reported The Fly.
This could also have a knock-on effect for chip foundry Taiwan Semiconductor (NASDAQ:TSNC), which makes chips for NVIDIA. Taiwan Semiconductor is due to report Q1 earnings on Thursday. Taiwan Semiconductor stock was off about 4% Wednesday.
Wedbush did not change its price target for NVIDIA of $175 per share, which would suggest 66% upside. But time will tell if that comes down.
AMD expects $800 million hit
DA Davidson analysts said it is still unclear how much NVIDIA revenue is at risk from this ruling. It awaits more visibility from the government on this mandate and maintains its $120 per share price target.
Several other Wall Street firms weighed in as well.
“Sentiment was already fairly low for the July quarter given concerns that the GB200 ramp continues to be slow, but this new headwind makes sequential growth much more difficult,” Jefferies analyst Blayne Curtis wrote in a note to clients, reported MarketWatch.
NVIDIA has an median price target of $174 per share among analysts, but this news could impact those lofty projections.
Meanwhile, other chip makers that do business in China, including AMD (NASDAQ:AMD), are also impacted. In an SEC filing, AMD said it expects the new requirement will result in in charges of up to approximately $800 million in inventory, purchase commitments and related reserves.
“The company expects to apply for licenses but there is no assurance that licenses will be granted,” the filing said.
AMD stock was also down more than 6% on Wednesday, trading at around $89 per share. AMD has a $140 per share price target, which would be a 57% increase.
