Nvidia Stock Drops Amid Fed Concerns and Looming Export Restrictions

Nvidia (NVDA) and other chipmakers experienced declines on Friday, with Nvidia’s stock dropping as much as 4%, as the market digested a December jobs report that delayed expectations for Federal Reserve rate cuts. Simultaneously, concerns over upcoming U.S. export restrictions on AI chips to countries like China further weighed on sentiment.

Export Restrictions in Focus
The Biden administration is preparing to implement rules restricting the export of advanced AI chips, such as those used in data centers, to adversary countries like Russia and China. This move is seen as an attempt to limit the development of AI capabilities in these regions.

• China’s AI Chip Dependency: Approximately 40% of Nvidia’s AI chip sales are tied to the Chinese market, according to DA Davidson analyst Gil Luria. With China lacking access to EUV lithography, crucial for domestic chip production, the restrictions could significantly impact Nvidia’s revenue.
• Nvidia’s Opposition: Nvidia’s Vice President of Global Affairs, Ned Finkle, criticized the proposed policy, stating it would harm the U.S. economy and benefit adversaries. Nvidia also faces challenges controlling resellers, making it harder to comply with potential U.S. demands to ensure chips aren’t used in restricted regions.
• Industry Concerns: The Information Technology & Innovation Foundation expressed fears that the restrictions might backfire, providing opportunities for foreign competitors while limiting U.S. companies’ market access.

Market Reaction

• Stock Performance: Nvidia’s decline on Friday followed a volatile week. The stock hit a record high earlier in the week but fell over 6% on Tuesday, extending its losses by week’s end.
• Peer Impact: AMD (Advanced Micro Devices) dropped over 5%, while the PHLX Semiconductor Index (^SOX) slid more than 2.5%. Goldman Sachs added pressure on AMD by downgrading its stock to a Hold rating.
• Broader Market Influence: The Nasdaq Composite Index (^IXIC) fell 2% after the December jobs report dampened hopes for near-term interest rate cuts.

Mixed Signals Amid Industry Developments
Despite the challenges, TSMC (Taiwan Semiconductor Manufacturing Company) reported better-than-expected December quarter sales, providing a glimmer of positivity for the semiconductor sector.

Looking Ahead
Bank of America analysts maintained a Buy rating on Nvidia despite the uncertainties, noting that any revenue losses from export restrictions could be offset by stronger demand in other markets. However, volatility is expected to persist until Nvidia’s quarterly earnings report on February 26.

For AMD, Goldman Sachs cited “lackluster” demand for consumer AI devices showcased at CES 2025 as a key reason for its downgrade.

Key Takeaway
Nvidia and other chipmakers face near-term headwinds due to macroeconomic pressures, export restrictions, and tepid demand for consumer AI products. However, long-term prospects remain tied to the resolution of policy challenges and broader demand dynamics in global markets.