Big Government – Regulating Semiconductor Sales | News or Noise?

Last Thursday, on September 1st, In a filing with the SEC, semiconductor maker Nvidia disclosed that the U.S. government told the company on August 26th about a new license requirement for future exports to China. This includes exports to and from Hong Kong. The rules rationale was to reduce the risk that their products may be used by the Chinese military.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money.

This week we cover the Biden administration’s move telling Nvidia to stop selling its most advanced chips to China and Russia. This is news for Nvidia and most other semiconductor names. Nvidia said the restriction would affect the A100 and H100 products. These are their most advanced graphics processing chips sold to businesses.

Nvidia said it could lose $400 million in potential sales in China in the 3rd quarter. Recall that Nvidia, like many other semiconductor
companies, had already guided down their second-half outlooks due to a slowing global economy and higher inventory in the channel. The government’s new rule also applies to sales to Russia, but Nvidia said it doesn’t have paying customers there.

Recall that under President Trump, the U.S. government started to increase export restrictions on chips made with U.S. technology. Most specifically, back then, the intelligence
community was concerned largely about telco equipment maker Huawei. They feared that Chinese companies could use our advanced semiconductors for military purposes or to steal trade secrets. China currently makes up almost 25% of Nvidia’s sales. On Thursday, Nvidia’s stock which was already almost 50% off its 2021 highs, fell by another 11%.

This is even though they said they had already applied for and been granted a waiver for U.S. export customers through March 1st, 2023, as well as the ability to export out of their Hong Kong center through September 2023. In addition to Nvidia, another semiconductor leader, AMD, Advanced Micro Devices, said it had also received new licensing requirements from the U.S. Department of Commerce for a new artificial intelligence chip. Having a smaller footprint in China in the space, AMD said it did not believe the new requirements would cause a material impact to its business. Viewers, this is news.

Unfortunately, bad news short-term for these semiconductor companies. Anything like this, government intervention or increased regulations, that constrain future markets for growth, have an immediate impact of removing possible future revenue from a companies “Total addressable market”, also know as TAM in finance circles. For high growth stocks like NVDA and AMD whose valuations are tied to structurally faster growth, the valuation hit is immediate and severe, hence the immediate and almost instantaneous -11% drop in NVDA and -7% drop in AMD on Thursday.

At Oak harvest, we think our clients are best served by us helping them plan for their future needs, instead of focusing on the past. The future is always uncertain and that’s why our advisors and retirement planning teams, plan for your retirement needs first, and your greed’s second.

Give us a call to speak to an advisor and let us help you craft a financial plan that helps you meet your retirement goals. Call us here at (877) 896-0040, and schedule  an advisor consultation. We are here to help you on your financial journey into and through your retirement years. I’m Chris Perras and from everyone here at Oak Harvest Have a blessed week.