These regulations, among the most stringent introduced by the Biden administration, restrict AI chip exports to most nations, allowing only a select group of close U.S. allies to receive them.
Additionally, the rules continue to prohibit exports to certain countries, including China, as the U.S. seeks to close regulatory gaps and prevent Beijing from obtaining advanced chips that could enhance its military capabilities.
The soaring demand for AI chips has propelled Nvidia into the ranks of the world's most valuable companies, boasting a market capitalization exceeding $3 trillion. However, these new restrictions may hinder its capacity to achieve the strong revenue growth anticipated by investors.
"These rules will significantly limit (Nvidia's) market since as much as half its chips currently end up in countries that will be off-limits once the rules are applied," said D.A. Davidson analyst Gil Luria.
Company disclosures indicate that approximately 56% of Nvidia's revenue is derived from international customers, with China accounting for about 17% of its sales. Shares of the Santa Clara, California-based firm experienced a decline of around 2%.
The export restrictions "threaten to disrupt innovation and economic growth globally" and would "undermine America's leadership," asserted Nvidia's Vice President of Government Affairs, Ned Finkle.
Finkle contended that America's preeminent position in AI would be compromised because the regulations "would impose bureaucratic control over the design and marketing of America's leading semiconductors, computers, systems, and even software on a global scale."
The Semiconductor Industry Association, a lobbying organization, also criticized the rules, stating that they would compel U.S. companies to relinquish market share to competitors.
"By limiting access to large quantities of advanced processors, the U.S. is effectively showing the world who's the boss. However, in doing so, it also threatens to crimp the earnings potential for many American firms such as Nvidia," said Dan Coatsworth, investment analyst at AJ Bell.
Financial analysts have upwardly revised their earnings estimates for Nvidia, exceeding the rate of its stock price appreciation. The forward price-to-earnings ratio currently stands at approximately 31, down from its June 2023 peak of over 80.
Prominent cloud providers, including Microsoft, Google (Alphabet Inc.), and Amazon.com, are anticipated to benefit significantly from the revised regulations.
These regulations permit major cloud providers to seek exemptions from AI chip licensing requirements, thereby enabling the establishment of data centers in regions impacted by U.S. chip import restrictions.
Consequently, these industry leaders are projected to experience a rise in market share, as indicated by industry analysts.
"We have long viewed these companies as the gatekeepers of AI, anyway, given their financial ability to continually invest in next-gen large language models and massive installed bases," said CFRA Research analyst Angelo Zino.
"The companies that have access to the most advanced chips (in this case, the big cloud providers) will have an advantage."
Nevertheless, ambiguities persist regarding the new regulations, as their effective date is 120 days post-publication, affording the incoming Trump administration an opportunity for review.
While both administrations concur on China's competitive threat, numerous analysts anticipate that President-elect Trump would exhibit greater willingness to engage in bilateral negotiations with individual entities and nations.
"He (Trump) might tinker with the list of allies on the exemption list, but overall, the move is in step with Trump’s way of thinking," Coatsworth said.