Shares of Nvidia (NASDAQ: NVDA) were trading nearly 7% lower at 10:52 a.m. ET today. In a filing last night, Nvidia disclosed that it would be taking a $5.5 billion charge in its first quarter of fiscal 2026 after the U.S. government informed the company that it will need a license to export certain chips to China and other countries.
Export restrictions ramping up
Nvidia will need the license to sell its less advanced H20 chips in China, including Hong Kong and Macao. The license requirement will be in "effect for the indefinite future" and is intended to prevent China from obtaining tech that could be used to build a supercomputer. Nvidia attributed the $5.5 billion charge to getting H20 products for inventory, purchase commitments, and related reserves.
The move builds on actions initially undertaken by the Biden administration to prevent some of Nvidia's most advanced chips from reaching China in order to stymie its artificial intelligence (AI) capabilities. In fact, Nvidia actually built the H20 chip to comply with the export restrictions. CNBC estimates the chips brought in $12 billion to $15 billion in revenue in 2024. However, earlier this year, a Chinese company called DeepSeek used the H20 chips to develop a chatbot similar to OpenAI's ChatGPT, supposedly at a fraction of the cost.
Wedbush analyst Dan Ives, who covers Nvidia and many other tech giants, said on X that investors should "get used to this news flow in US/China tariff battle but it's a game of high stakes poker and need to buckle seat belt. Look past the chaos. Nvidia the only AI chip in the world ... demand not the issue." Still, he acknowledged in a research note that Nvidia will face significant roadblocks in its effort to sell in the Chinese market.
Perhaps a longer-term issue
While the recent license requirement seems related to the tense trade negotiations between the U.S. and China, this is also a decision that has been building since 2022. U.S. presidents on the right and left seem to want to keep Nvidia's chips out of China, so the export license may last longer than a potential trade war -- it's hard to know.
That said, Nvidia now trades at 23 times forward earnings, toward the bottom end of its range over the last five years, and analysts like Ives still seem to think the company has a significant moat. This could be the time to start nibbling.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
