The US’ decision to halt its semiconductor companies from exporting cutting-edge chips is taking a toll on the country’s chips stocks.
On Thursday, the main semiconductor index tumbled more than 3% following statements by leading US chip companies, Nvidia and Advanced Micro Devices (AMD) that they’ve been ordered to stop supplying China with cutting-edge processors for artificial intelligence.
Nvidia’s stock took a major hit, dropping 11%, nearly eclipsing its biggest loss of percentage per day since 2020. Rival AMD lost nearly 6% also.
Reuters reported that as of mid-day, Nvidia has lost about $40 billion worth of its stock market value, while the 30 companies making up the Philadelphia semiconductor index lost a combined about $100 billion worth of stock market value.
On Wednesday, Nvidia had announced in a filing to the US Securities and Exchange Commission that Chinese customers would henceforth be prohibited from purchasing its “A100 and forthcoming H100 integrated circuits,” exposing the company to a potential loss of up to $400 million in sales of those high-end chips.
The move came as political tension between the US, China and Russia is escalating. Compounded by Russia’s invasion of Ukraine early this year and China’s push to return Taiwan as its territory, the relationship between the three countries has soured over time. The US is now trying to limit both China and Russia from using its intelligence to develop advanced military capabilities.
“[The U.S. government] is preventing China’s acquisition and use of U.S. technology in the context of its military-civil fusion program to fuel its military modernization efforts, conduct human rights abuses, and enable other malign activities,” a spokesperson for the Commerce Department told the New York Times.
Nvidia’s A100 chipset, which powers data centers used for A.I., data analytics, and high performance computing, is on high demand in China. The US government told Nvidia that restricting the export would help ensure that Nvidia’s products are not “used in” or “diverted to” Russian or Chinese military equipment, according to the filing.
AMD also said US officials told it to stop exporting its top MI250 chip that’s used in data centers for high performance computing to China. But the company said the new restrictions will not block shipments of its MI100 chip to China.
Under former President Donald Trump, Washington reached an agreement with Beijing that compelled China to stop stealing American technology. Trump also announced a series of bans targeting Chinese companies – top of the list was Huawei, a Chinese telecom vendor leading global 5G rollout as of then.
Washington extended the ban to microchips, restricting semiconductor companies with access to US technology from supplying the telecom vendor and some other Chinese firms with chips.
In the last few decades, China has grown from an underdog to a power to reckon with, both in military and economic development. The South Asian giant owes a huge part of its success to technological advancement.
But China measuring up to the US is not something Washington really wants to stand by and watch. Last month, the US unveiled the most significant government intervention in industrial policy in decades. Congress passed a $280 billion bill aimed at developing America’s manufacturing and technological edge to counter China.
However, the new ban may be as bad to China’s tech development as it is to the US economy. With its huge tech economy, China is the biggest buyer of US chips. Cutting her off will hurt the US semiconductor industry that has been struggling to stay afloat.
“We see an escalation in US semiconductor restrictions to China and increased volatility for the semiconductors and equipment group following NVIDIA’s update,” Citi analyst Atif Malik wrote in a research note.