New US Export Restrictions And The Impact On AI Companies

October 20, 2023 02:19

Artificial Intelligence, or AI as most call it, may be the top topic of conversation related to technology in 2023. At the beginning of the year, Chat GPT and other similar Generative AI models impressed tech users as their capabilities and interactive user interface set new standards. However, new AI technology has brought the US and China into a new conflict as both have realised the potential of developing the relevant hardware and software.

Read here the latest updates that could impact AI companies as the US announced their decision to implement new curbs in exporting chips and other AI-related technology to China, Russia, etc.

US Strengthens AI Tech Export Restrictions On China

On October 17th, the US government, specifically, the Bureau of Industry and Security (BIS) released a 400-page report including rules and restrictions regarding exports of advanced AI chips to China and other countries such as Iran and Russia. The new restrictions are destined to limit the capabilities of the Chinese to develop further their military based on AI technology.

The first set of restrictions was implemented in October 2022, however, US authorities assessed that there were many loopholes that the Chinese side took advantage of in order to get access to AI-related technology.

Speaking to Reuters' reporters, former National Security Council agents said that “the organizing principle for all these rules is to keep them focused on those capabilities that can enable Chinese military systems. They're not interested in going after broad consumer applications. They're really trying to thread that needle.”

It’s All About The DUV Systems

Export curbs include DUV systems. If you wonder what DUV stands for, here is the answer: in order to produce superconductors, companies use immersion Deep Ultraviolet (DUV) machines. By implementing these restrictions, the US has vowed to stop any potential exports of DUV machines that consist of US-made superconductors.

AI Companies’ Shares Prices Slump On Curbs News

News regarding the updated export restrictions forced some of the most popular tech companies’ shares to fall on October 17th. For example, NVIDIA (NVDA) shares fell by 4.67% and kept sliding on October 18th. Intel (INTC) shares dropped by 1.4% and Advanced Micro Devices (AMD) shares fell by 1.2% in response to the news.

NVIDIA Forecasts No Impact On Its Financial Results

NVIDIA’s executives said in a report to the Securities Exchange Committee (SEC) that “given the strength of demand for our products worldwide, we do not anticipate that the additional restrictions will have a near-term meaningful impact on our financial results.”

Citi analysts cut their NVIDIA price target to $575 from $630 per share saying that “we are de-risking our FY25/26 estimates and assume low likelihood of U.S. government granting export licenses. We believe the scope of the new performance density thresholds will make it difficult for Nvidia to sell to China as it will require more than the networking modifications it made on prior [China products].”

Commenting on NVIDIA’s future, stock analysts at Morningstar wrote in their report: “This policy will likely affect a portion of Nvidia's fast-growing business of selling graphics processing units (GPUs) for data centers used for artificial intelligence (AI). As of now, we think the restrictions will, at worst, provide some modest long-term headwinds to Nvidia's exponential growth.”

They also suggest that “Nvidia's massive growth could make revenue from China less material over time. Nvidia pegs its data center revenue in China at 20%-25% of the total, but this percentage may decline as the company achieves rapid AI growth from cloud computing leaders in other developed markets. We continue to forecast $41 billion of data center revenue in fiscal 2024, growing to $100 billion in fiscal 2028, thanks to the tremendous demand to build and implement AI models.”

ASML Says 2024 Revenue Likely To Be Flat

ASML, one of the most important semiconductor firms in the world, has also been caught up in the tension between China and the US. The Dutch firm announced its third quarter results recording a profit rise on an annualised basis and surpassing analysts’ expectations. However, ASML’s Q3 2023 report noted that revenue in 2024 would likely be flat.

As ASML is one of the largest DUV producers globally some market analysts suggest that the new set of restrictions could weigh on ASML’s profitability, which has suffered amid weak demand for mobile devices such as smartphones and laptops. It should be noted that the Netherlands have also implemented rules against exporting AI-related chips to China, however, ASML executives said that these measures wouldn’t affect 2023 financial results.

Trading AI Companies' Stocks And How To Manage Risks

Beginner traders may look at charts of AI companies’ stocks in the last few years and may consider adding them to their portfolios. The truth is that the tech sector is on the rise whether it is related to AI or cybersecurity. Despite the rise of tech stocks, trading risks remain a valid point for beginner traders who should focus on expanding their knowledge to be able to withstand various difficulties that might come up.

Studying is the best way to become a better trader. Beginner traders can find an abundance of educational materials dedicated to trading online such as articles, how-to guides, videos and others. By upgrading their trading knowledge, beginner traders can reduce the risk when delving into the volatility of the global financial markets.

One more thing that beginner traders should learn is how to use risk management tools. Trading platforms come with a multitude of risk management tools that once utilised correctly can make a difference in a strategy’s execution. It should be noted that markets can move against you, and it would be best to have the help of technology and reduce your risk rather than exposing yourself to unnecessary financial danger.

Does trading on macroeconomic news interest you? Learn how this approach works with our free webinars. Meet and interact with experienced traders. Watch and learn from live trading sessions.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.