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U.S. restricts sales of high-end chips to China: sell Nvidia stock now?

By:
on Sep 1, 2022
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  • U.S. announced new licensing requirements on sales of sophisticated chips to China.
  • Nvidia says new restrictions will result in a $400 million hit to revenue this quarter.
  • Jim Cramer and Bernstein's Stacy Rasgon share their outlook on the Nvidia stock.

Nvidia Corporation (NASDAQ: NVDA) is down 10% on Thursday after the U.S. announced new licensing requirements on sales of sophisticated chips to China and Russia.

What does that mean for Nvidia Corp?

For Nvidia, that means export restrictions on its A100 and H100 products. Consequently, the multinational warns of a $400 million hit to revenue this quarter. Still, Jim Cramer said on CNBC’s “Squawk Box”:

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I’m not saying buy Nvidia today. I’m saying don’t write off Nvidia. If you count Jensen out after this, you’re making a very big mistake. Jensen Huang is the best there is. I think $400 million maybe the worst.

The chipmaker is in touch with its customers in China to see if “alternative products” could satisfy their requirements. If not, it plans on requesting a “license” from the U.S. Department of Commerce.

It is yet to unravel, though, if the government will authorise such an exemption that will enable Nvidia to continue selling at least some of its high-end chips to select customers in China.

Bernstein lowers price target on Nvidia stock

Last month, Nvidia guided for $5.9 billion in sales for its third financial quarter versus the Street at $6.95 billion. With the new restrictions, though, it might even fail to hit that weaker-than-expected number.

Also on Thursday, Bernstein’s Stacy Rasgon trimmed his price objective on the semiconductor company to $180 but said:

“It’s not trivial, but it’s not earth shattering, devastating either. They’ll be looking to get licenses and try to supply alternative products. But it feels prudent to take the impacted China revenue out of our Nvidia numbers.”

The lowered target still represents about a 35% upside from here. So, the sell-off today might have created an opportunity to buy Nvidia stock that’s been cut in half this year.