The tech-heavy Nasdaq Composite Index fell 2.5% on Wednesday, as investors reacted to the news that the U.S. government is considering banning the export of advanced artificial intelligence (AI) chips to China and other countries. The move could hurt some of the leading tech companies that rely on AI for their products and services, such as Nvidia, Microsoft, and Apple.
AI Chip Export Ban Could Hit Nvidia Hard
One of the most affected companies by the potential AI chip export ban is Nvidia (NVDA), the dominant player in the market for graphics processing units (GPUs) that power AI applications. Nvidia’s GPUs are used by cloud computing giants like Microsoft (MSFT) and Amazon (AMZN) to offer AI services to their customers, as well as by tech companies like Alphabet (GOOGL) and Apple (AAPL) to develop their own AI products.
Nvidia’s revenue from its data center segment, which includes its AI chips, grew 79% year over year to $6.7 billion in fiscal 2023, accounting for 44% of its total revenue. The company also has a strong presence in China, where it sells its chips to local cloud providers and tech firms. According to a report by Bloomberg, Nvidia’s sales to China accounted for about 20% of its total revenue in fiscal 2023.
However, Nvidia’s growth prospects could be jeopardized if the U.S. government decides to restrict its exports of AI chips to China and other countries that are deemed to pose a national security threat. The U.S. Department of Commerce is reportedly drafting a list of technologies that would require a license to be exported, and AI chips are among the candidates. The move is part of the Biden administration’s efforts to curb China’s technological rise and protect U.S. interests.
If the export ban is implemented, Nvidia could lose a significant portion of its revenue and market share, as well as face increased competition from domestic and foreign rivals. For instance, China has been developing its own AI chips, such as the Cambricon MLU100 and the Huawei Ascend 910, to reduce its dependence on U.S. suppliers. Meanwhile, other countries like Japan and South Korea are also investing in their own AI chip industries.
Microsoft and Apple Could Also Feel the Pinch
Nvidia is not the only tech company that could suffer from the potential AI chip export ban. Microsoft and Apple, two of the largest tech companies in the world, also rely on AI for their products and services, and could face challenges if they are unable to access Nvidia’s chips.
Microsoft is one of Nvidia’s biggest customers, as it uses its GPUs to power its Azure cloud platform, which offers various AI services to its clients. Microsoft also uses Nvidia’s chips for its own AI products, such as its Bing search engine, its Cortana virtual assistant, and its HoloLens mixed reality headset. In addition, Microsoft has partnered with Nvidia to build a new supercomputer that will run on Azure and enable large-scale AI research.
Apple is another major user of Nvidia’s chips, as it uses them for its Mac computers, which feature an option to add an external GPU for enhanced graphics performance. Apple also uses Nvidia’s chips for its own AI development, such as its Siri voice assistant, its Face ID facial recognition system, and its Core ML machine learning framework. Furthermore, Apple has been rumored to be working on a self-driving car project that could use Nvidia’s chips for autonomous driving.
If the U.S. government bans the export of AI chips to China and other countries, Microsoft and Apple could face difficulties in obtaining Nvidia’s chips for their cloud and device businesses. They could also lose access to some of their customers and markets that are affected by the ban. Moreover, they could face increased competition from other tech companies that use alternative sources of AI chips, such as Intel (INTC), AMD (AMD), or Qualcomm (QCOM).
Tech Investors Brace for Uncertainty
The potential AI chip export ban is adding to the uncertainty that tech investors are facing amid rising inflation and interest rates, which have weighed on the valuations of high-growth tech stocks. The Nasdaq Composite Index has fallen 7% from its record high in February, while some of the leading tech stocks have suffered even bigger losses.
Nvidia’s stock price has dropped 15% from its all-time high in April, while Microsoft’s stock price has declined 9% from its peak in February. Apple’s stock price has plunged 18% from its record high in January, while Alphabet’s stock price has slipped 7% from its peak in April.
The tech sector is facing a challenging environment, as it has to cope with regulatory pressures, geopolitical tensions, and market volatility. The potential AI chip export ban could add another layer of complexity and risk for some of the biggest tech companies that depend on AI for their growth and innovation.
