Shares of Nvidia (NVDA 0.95%) tumbled hard on Thursday, falling as much as 11.1%. As of 11:13 a.m. ET, the stock was still down 10.9%.
The catalyst that sent the semiconductor specialist plunging was a federal government mandate restricting chip sales to China and Russia.
In a regulatory filing that dropped late Wednesday, Nvidia revealed that the U.S. government had imposed a new licensing requirement on the company's high-end chips used for artificial intelligence (AI) systems and data centers, effective immediately, for any exports to China and Russia.
Nvidia noted that the company "does not sell products to customers in Russia," so the new license requirement applies only to sales of its chips in China. This means that Nvidia will be required to request permission to sell its high-end processors to companies in China, but has "no assurance that the USG [U.S. government] will grant any exemptions or licenses for any customer, or that the USG will act on them in a timely manner."
The purpose of the new restriction is to address the risk that products listed in the ban may be used for military purposes in China, or ultimately diverted to end users in Russia.
The restrictions apply to Nvidia's A100 Tensor Core graphics processing unit (GPU) and forthcoming H100 processors and any integrated systems that include the chips, including the company's DGX AI "supercomputer-in-a-box," and future versions of these processors. These semiconductors are deployed for AI, high-performance computing (HPC), and data center operations.
Nvidia said it's working with its customers in China, "seeking to satisfy their planned or future purchases of the company's data center products with products not subject to the new license requirement."
Management adjusted its outlook for the current quarter, noting there were approximately $400 million in potential sales subject to the new restrictions.
This couldn't come at a worse time for Nvidia, as its sales for the fiscal 2023 third quarter (ended July 31) had already seen a significant slowdown, the result of weak demand for its gaming chips. The data center segment carried the day, climbing 61% year over year.
That said, Nvidia has navigated far worse and this last development will merely be a blip in the radar over the long term.