{"id":192824,"date":"2023-06-30T11:30:00","date_gmt":"2023-06-30T15:30:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=192824"},"modified":"2023-06-30T11:19:25","modified_gmt":"2023-06-30T15:19:25","slug":"how-new-ai-restrictions-may-throw-a-wrench-in-nvidias-plans","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/how-new-ai-restrictions-may-throw-a-wrench-in-nvidias-plans\/","title":{"rendered":"How New AI Restrictions May Throw a Wrench in Nvidia\u2019s Plans"},"content":{"rendered":"\n<p><strong>In a new global AI race, the US is trying to keep a competitive edge through export controls.<\/strong><\/p>\n\n\n\n<p>Even in their current iteration, AI models are poised to augment productive output by orders of magnitude. And if that is the case, the geopolitical power alignment could shift drastically.<\/p>\n\n\n\n<p>This is why the U.S. Department of Commerce seeks to limit China\u2019s access to AI chips further. According to the Wall Street Journal\u2019s&nbsp;<a href=\"https:\/\/www.wsj.com\/articles\/for-nvidia-and-china-an-ai-battle-with-washington-bodes-ill-9da164f9\" target=\"_blank\" rel=\"noreferrer noopener\">report<\/a>&nbsp;on Tuesday, these new restrictions could come in as early as next month. But didn\u2019t the Biden admin already place such limits?<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-nvidia-in-the-middle-of-usg-s-crosshairs-to-stall-china-s-ai-progress\">Nvidia in the Middle of USG\u2019s Crosshairs to Stall China\u2019s AI Progress<\/h2>\n\n\n\n<p>In August 2022, Nvidia filed its&nbsp;<a href=\"https:\/\/www.sec.gov\/ix?doc=\/Archives\/edgar\/data\/0001045810\/000104581022000146\/nvda-20220826.htm\" target=\"_blank\" rel=\"noreferrer noopener\">8-K form<\/a>&nbsp;to the SEC, revealing that the U.S. government (USG) imposed a new license requirement \u201cfor any future export to China (including Hong Kong) and Russia of the Company\u2019s A100 and forthcoming H100 integrated circuits.\u201d<\/p>\n\n\n\n<p>Thanks to ChatGPT taking the internet by storm, these chips have become a hot commodity as they offer high-performance computing (HPC) necessary to&nbsp;<a href=\"https:\/\/tokenist.com\/these-3-ai-stocks-soared-in-may-where-are-they-now\/\">scale AI demand<\/a>. Nvidia CEO, Jensen Huang, described the role of GPU chips as ones better suited for generative AI (GAI):<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p><em>\u201cInstead of retrieving data, you\u2019re going to retrieve some data, but you\u2019ve got to generate most of the data using AI. So instead of millions of CPUs, you\u2019ll have a lot fewer CPUs, but they will be connected to millions of GPUs,\u201d<\/em><\/p>\n<\/blockquote>\n\n\n\n<p>However, to defend its bottom line and&nbsp;<a href=\"https:\/\/tokenist.com\/investing\/stocks-that-pay-dividends\/\">fiduciary duty to shareholders<\/a>, Nvidia released another suitable AI chip, the A800, in November 2022. Nearly equal in computing power to the A100 series, the A800 is a cut-down version of the A100, effectively shortcircuiting existing export restrictions to China.<\/p>\n\n\n\n<p>Tuesday\u2019s WSJ report on another export restriction responds to that evasion. Additionally, the USG would restrict Chinese access to cloud services. That makes sense because Microsoft Azure, Amazon Web Services (AWS), and Google Cloud use Nvidia\u2019s chips for their data centers.&nbsp;<\/p>\n\n\n\n<p>Therefore, even if Nvidia chip exports are restricted, China could still access Nvidia-powered AI computing.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Chinese Companies Rely on Nvidia Tech (for now)<\/h2>\n\n\n\n<p>By extension, this could hurt many Chinese companies, such as ByteDance (TikTok), that rely on Western data centers and storage solutions.&nbsp;<\/p>\n\n\n\n<p>ByteDance ordered&nbsp;<a href=\"https:\/\/www.tomshardware.com\/news\/chinas-bytedance-has-gobbled-up-dollar1-billion-of-nvidia-gpus-for-ai-this-year\" target=\"_blank\" rel=\"noreferrer noopener\">100,000 chips<\/a>&nbsp;(A100s and H800s) this year, worth over $1 billion. Likewise, Alibaba, Baidu, and Tencent have hurried to stock up on Nvidia chips, anxious about further export controls.&nbsp;<\/p>\n\n\n\n<p>According to&nbsp;<a href=\"https:\/\/www.reuters.com\/technology\/inside-chinas-underground-market-high-end-nvidia-ai-chips-2023-06-19\/\" target=\"_blank\" rel=\"noreferrer noopener\">Reuters<\/a>, the immediate side effect is a thriving black market in which A100s in China go for double their price, at $20,000 per unit.&nbsp;Expectedly, Chinese chip makers were boosted, but not by much.<\/p>\n\n\n\n<p>Since Tuesday, Chinese Cambricon Technologies and Jingjia Microelectronics have increased by 2.6% and 4.6%, respectively. However, both stocks are down 15% and 9% over the week.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Hint of Refreshed Export Control Exerts Minor Pressure on Nvidia\u2019s Stock<\/h2>\n\n\n\n<p>Year-to-date, Nvidia (NVDA) stock is still up +191%. The pivotal momentum happened on May 24th, following the release of the company\u2019s Q1 2023 earnings.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" width=\"1024\" height=\"806\" data-src=\"\/campus\/wp-content\/uploads\/sites\/2\/2023\/06\/Screenshot-2023-06-28-165434-1024x806-1.png\" alt=\"Year-to-date, Nvidia (NVDA) \" class=\"wp-image-192825 lazyload\" data-srcset=\"https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/06\/Screenshot-2023-06-28-165434-1024x806-1.png 1024w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/06\/Screenshot-2023-06-28-165434-1024x806-1-700x551.png 700w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/06\/Screenshot-2023-06-28-165434-1024x806-1-300x236.png 300w, https:\/\/ibkrcampus.com\/campus\/wp-content\/uploads\/sites\/2\/2023\/06\/Screenshot-2023-06-28-165434-1024x806-1-768x605.png 768w\" data-sizes=\"(max-width: 1024px) 100vw, 1024px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1024px; aspect-ratio: 1024\/806;\" \/><\/figure>\n\n\n\n<p>Conversely,&nbsp;<a href=\"https:\/\/tokenist.com\/nvidias-one-day-gain-nearly-equals-ethereums-market-cap\/\">Nvidia overshot Wall Street consensus<\/a>&nbsp;by over 50%. The report also confirmed Nvidia\u2019s shift from a video-gaming company to a data center supplier. This became evident from $2.24 billion in revenue from gaming sales vs. $4.28 billion in data center chip sales.&nbsp;<\/p>\n\n\n\n<p>Nvidia\u2019s CEO clarified that they \u201care significantly increasing our supply to meet surging demand for them.\u201d But the latest USG-induced FUD could significantly cut that demand short. Consequently, Nvidia\u2019s forecast-beating revenue model that boosted the stock could no longer be in play.<\/p>\n\n\n\n<p>Nonetheless, since Tuesday\u2019s WSJ article to press time, NVDA shares barely nudged, dropping by 1.23%. The \u201cbuy the rumor, sell the news\u201d trading strategy seems to be in play. However, if new export controls come online next month, Nvidia will likely dip under the $1 trillion market cap threshold again.&nbsp;<\/p>\n\n\n\n<p>&#8212;<\/p>\n\n\n\n<p>Originally Posted June 28, 2023 &#8211; <a href=\"https:\/\/tokenist.com\/how-new-ai-restrictions-may-throw-a-wrench-in-nvidias-plans\/\">How New AI Restrictions May Throw a Wrench in Nvidia\u2019s Plans<\/a><\/p>\n\n\n\n<p>Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In a new global AI race, the US is trying to keep a competitive edge through export controls.<\/p>\n","protected":false},"author":501,"featured_media":192825,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4,6,8,9,22,26,3],"tags":[632,912,8235],"contributors-categories":[13710],"class_list":{"0":"post-192824","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-asia","8":"category-north-america","9":"category-region","10":"category-securities","11":"category-stocks","12":"category-text-articles","13":"category-traders-insight","14":"tag-ai","15":"tag-artificial-intelligence","16":"tag-nvidia","17":"contributors-categories-the-tokenist"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ 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