Nvidia’s stock (NVDA) saw a nearly 2% drop on Monday after the Biden administration introduced a new export rule aimed at restricting the flow of artificial intelligence (AI) chips, such as graphics processing units (GPUs), to nations considered “adversaries,” including China.
The White House announced that the updated rule would limit the number of AI chips that can be exported to most countries without requiring a special license. Under the new guidelines, orders of 1,700 or fewer GPUs will not count toward the export limit. The U.S. government emphasized that the move is necessary to safeguard both national security and economic interests. “Artificial intelligence is quickly becoming central to both security and economic strength,” the White House stated. “The United States must act decisively to lead this transition by ensuring that U.S. technology underpins global AI use and that adversaries cannot easily exploit advanced AI.”
The new policy primarily impacts nations that are not U.S. allies. While key U.S. allies, including the UK, Netherlands, and Taiwan, will not face any restrictions, countries subject to arms controls—such as China, North Korea, and Russia—will continue to face a ban on receiving the latest AI chips.
A significant aspect of the updated export regulations is the cap on the compute capacity of AI chips that can be shipped to countries outside the U.S. ally circle. Specifically, the rule allows U.S. companies to ship AI chips with a maximum compute density of 790 transistors per square millimeter. This cap is equivalent to approximately 50,000 Nvidia Hopper chips or 20,000 of Nvidia’s latest Blackwell chips, according to Bernstein analyst Stacy Rasgon. Notably, countries like Switzerland and Israel, despite being U.S. allies, will also be subject to this limitation.
For context, major companies like Microsoft (MSFT) and Meta (META) have made substantial purchases of Nvidia’s AI chips. In 2024, Microsoft reportedly bought 485,000 Hopper GPUs, while Meta purchased 224,000, according to the Financial Times.
The Biden administration claims the rule aims to close loopholes in previous restrictions on AI chip exports, implemented in 2022 and 2023, which had allowed some smuggling activities to bypass U.S. regulations. “This rule will make it even more difficult for Chinese entities to purchase the most advanced NVIDIA chips,” said DA Davidson analyst Gil Luria in an email to Yahoo Finance. Luria added that the new measure targets the resale of Nvidia’s advanced chips, which had previously reached China through indirect channels.
Despite these restrictions, Nvidia continues to produce versions of chips that comply with U.S. trade regulations, such as the Nvidia H20 chips, which are specifically designed for sale in China.
In response to the rule, Nvidia’s Vice President of Government Affairs, Ned Finkle, criticized the administration for implementing the measure without proper legislative review. “This rule threatens to undermine innovation and stifle competition,” Finkle said in a statement. He also expressed concern over the potential negative impact on America’s technological advantage.
The rule has sparked significant debate, with Nvidia calling for a reversal of these policies and a return to a more open approach to technology sharing. “America wins through innovation, competition, and by sharing our technologies with the world—not by retreating behind a wall of government overreach,” Finkle stated.
Analysts are divided on the rule’s potential impact on Nvidia. Bank of America analyst Vivek Arya reiterated his Buy rating on Nvidia, although he noted that the new restrictions create uncertainty for the company’s future prospects. Citi analyst Atif Malik also acknowledged that the export cap could pose risks to Nvidia’s data center GPU sales, which contribute the majority of its revenue.
The drop in Nvidia’s stock price on Monday builds upon a 3% decline last Friday, when investors had anticipated the export controls. Over the past five trading days, Nvidia’s shares have fallen by around 9%.
Nvidia’s stock decline also comes amid other concerns, including a downgrade from HSBC, which lowered its price target for Nvidia to $185 from $195, citing ongoing supply chain issues related to the Blackwell chips. These issues are expected to persist through the first half of fiscal year 2026.
The Semiconductor Industry Association expressed similar concerns, criticizing the rushed policy shift. “We’re deeply disappointed that a policy shift of this magnitude and impact is being rushed out the door days before a presidential transition and without any meaningful input from the industry,” the association stated.
As the regulatory changes approach, Nvidia’s future in the AI chip market remains uncertain, with the rule set to take effect in one year, after a 120-day comment period.
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