Morgan Stanley says Nvidia is more affected than expected by the new China export restrictions.

Key Takeaways

• Morgan Stanley analysts lowered their revenue projections on Wednesday for Nvidia. They cited concerns that new chip export restrictions to China were “more disruptive” than expected.
• Nvidia on Tuesday said it expects to take a $5.5 billion charge in its fiscal first quarter after the U.S. government told the chipmaker it would need an export license to sell its H20 chips to China. 
• Analysts said the writedown suggests the company is not optimistic about being granted a license, and that new restrictions could have a lasting impact on Nvidia's business.

Morgan Stanley analysts lowered Wednesday their revenue forecasts for Nvidia, citing concerns that the new curbs on chip exports to China will be “more disruptive than anticipated”.

Analysts expect Nvidia to suffer a 8%-9% drop in revenue from its data centers over the next two quarters, after the U.S. Government informed the chipmaker that it would need a federal license to export its H20 chips into China. The H20 is a less powerful chip than Nvidia’s newest chips and was designed to meet export restrictions for the Chinese market.

Nvidia said Tuesday it expects to take a $5.5 billion charge in its fiscal first quarter as a result of the government's decision, which “suggests that the company is not optimistic about being granted licenses,” Morgan Stanley said. The analysts estimated the H20 chip made up 12% to 13% of Nvidia's data center revenue in April. 

Nvidia’s shares dropped nearly 7%, closing at $104,49 on Wednesday. This led to a decline in other chip and technology stocks amid concerns that tighter export controls could have far-reaching effects. (Read Investopedia’s live coverage of today’s market action here.)

Lawmakers investigate Nvidia over chips used by DeepSeek

The federal government is increasing its scrutiny of Nvidia’s relationship to Chinese AI startup DeepSeek. The House Select Committee on Chinese Communist Party sent Nvidia a letter Wednesday expressing concerns that DeepSeek used restricted Nvidia processors to develop AI models. DeepSeek has claimed they can keep up to American rivals for a fraction of their cost.

"The U.S. government instructs American businesses on what they can sell and where—we follow the government’s directions to the letter," Nvidia told Investopedia.

DeepSeek’s rapid rise “makes this game of high stakes poker that much more tense,” Wedbush analysts said Wednesday, adding that Nvidia's AI leadership makes it a "big chip on the table for Trump.”

Analysts are still bullish on Nvidia stock

Despite concerns about the new export restrictions, Nvidia's stock is still a “top pick" said Morgan Stanley, which maintained its price target of $162, pointing to the chipmaker's potential to benefit from growing demand for AI hardware.

Bank of America also reiterated its $160 target. It called the stock of the chipmaker “compelling”, given global demand for Nvidia’s chips. Jefferies & UBS were both even more bullish and each reaffirmed a target of $185.