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Chip stocks drop as U.S. mulls fresh curbs on AI access to China

Shares of U.S. chipmakers fell on Wednesday following reports that the Biden administration was planning new curbs on export of computing chips for artificial intelligence to China as early as July.

Companies such as Advanced Micro Devices, Nvidia and Intel, which rely on the world’s second-largest economy for at least a fifth of their revenue, closed lower between 0.2% and 1.8%, caught in the U.S.-China crossfire.

The Philadelphia chip index closed 0.9% lower.

Last year, U.S. officials had ordered Nvidia to stop exporting its top two AI chips to China to limit the country’s technological capability.

Months later, Nvidia launched a new advanced chip called A800 in China to meet export control rules.

The new restrictions being considered by the Commerce Department would also include a ban on the sale of Nvidia’s A800 chip without a special U.S. export license, the Wall Street Journal report said.

Curbs on sales of datacenter graphics processing units to China would impact future financial results, Nvidia’s finance chief Colette Kress said on Wednesday. However, the company does not expect the additional restrictions to have an immediate material impact on its results.

“With an update on export controls now expected, investors will assess just how limiting the new rules will be for chip makers’ sales,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“A handful of tech companies pack a huge punch on Wall Street due to their sheer size, so any wobble in confidence reverberates on indices.”

Rising expectations over the advancements in AI have helped Wall Street climb this year, with Nvidia at the pole position on the S&P 500 index, gaining 187% so far this year.

But the sharp rise in shares has also sparked doubts over lofty valuations.

Nvidia is trading at 47 times its expected 12-months earnings, while AMD is at a 31.2 multiple and Intel at 31.8, way above the S&P 500’s multiple at 19, according to Refinitiv data.

The Philadelphia chip index has surged more than 42% so far this year, far ahead of the benchmark index’s 14% rise.

Across the Atlantic, Nordic Semiconductor, Dutch chipmaker ASML, Milan-listed STMicroelectronics , however, closed between 2.3% and 6.4% higher. Reuters

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