Biden admin. expands curbs on shipments of AI chips to China

Chipmaker stocks like Nvidia (NVDA) are under pressure as the Biden administration announced that it would tighten its restrictions around exporting artificial intelligence chips to China. The restrictions are part of a broader effort from the White House to restrict China's military from gaining an advantage with AI. The restrictions only apply to the most advanced chips while most semiconductors will remain unrestricted, according to Commerce Secretary Gina Raimondo.

Bernstein Managing Director Stacy Rasgon joins Yahoo Finance to break down the news and what it will mean for chip-making companies. Rasgon explains that for most chip companies, current regulations "don't have any near-term impact, and that's because demand is off the charts," but in the long-term "the China TAM [total addressable market] may likely be impaired."

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

JULIE HYMAN: Chip stocks under pressure, following the announcement of tougher rules on exports to China. The Biden administration expanding its curbs to prevent China, as well as Iran and Russia, from getting the upper hand in AI technology, and potentially using it to strengthen their militaries. Joining us now is Stacy Rasgon, who's Bernstein Research Senior Analyst.

And Stacy, it's good to see you. I can think of no one better than to help us figure out what this all means. And you were doing that in your note that you put out today in the wake of this being released, trying to figure out what the effect is going to have. What's the bottom line? What do investors need to know?

STACY RASGON: Yeah. So it looks to me-- and again, this is our first early read. This thing is 300 pages long. So we do the best we could.

However, it looks to me that most of the current mainstream data center GPUs that are getting sold into China are likely to come underneath a control regime. They're going to be subject to export controls. And likely, sales will be curtailed, unless and until the company can get a license to ship. And frankly, I wouldn't hold my breath on that.

So parts that NVIDIA has been shipping, actually, that were workarounds from some of the controls that were put on last year. They brought in products that were specific for the China market, that were designed to come in underneath the control thresholds a year ago. These new regulations close some of those workarounds and loopholes, and block off sales of that.

So I do think the stuff that NVIDIA has been selling into China as well as, frankly, even parts from Intel and AMD. It's not like they're selling any. But if you look at the specifications of those parts, they're not going to sell any into China. Those are going to come under the controlled regime as well.

JOSH LIPTON: So Stacy, let me ask you this. This is what NVIDIA is saying, in response to this. Given the demand worldwide for our products, we don't expect a near-term meaningful impact on our financial results.

So maybe, that gives comfort to some traders, Stacy. But let's say you're an investor, and you're listening to this. Should you be concerned about what this is going to mean long-term for NVIDIA?

STACY RASGON: Well, sure. So you're right. They don't have any near-term impact. And that's because demand is off the charts.

And the stuff that they were selling into China was almost the same as what they were selling elsewhere. There were only some few minor tweaks. And so, they can redirect that stuff. There's plenty of demand. Their backlogs are very high.

But long-term, yeah. Look, even the company themselves. NVIDIA has come out and said, if this stuff continues, that over the long term, the China TAM will likely be impaired. And I think that is the case. Now my own opinion, though, is that was-- is going to happen, anyway.

So let's imagine a scenario where these control thresholds, they're getting lowered today. Let's say that they were not lowered. Fine. They're never going to raise them, though. They're never-- as far as I can tell, the US government is never going to make it easier to ship stuff into China.

Best case, these thresholds stay where they are. And the gap over time between what is legal to sell in China versus the rest of the world is going to get bigger and bigger and bigger and bigger, as we go along. And eventually, the stuff-- even the stuff they're selling today would be noncompetitive in anyway.

So my own opinion is that the China TAM for this is likely already to have been impaired. The question is, is this going to happen quickly or slowly? Looks like it's probably happening quicker. Maybe that's a good thing. You can rip the Band-Aid off.

I do believe that over the long term, the overall opportunity is still very large, with or without China. But yeah. It's not like it's a positive. It's not.