Expect Nvidia and AMD stock to continue downtrends after government forbids sales to Russia, China

• The US halts both AMD and Nvidia from selling premium chips to China, Russia.
• NVDA stock is down nearly 5% in Thursday's premarket.
• AMD stock is also down close to 4%.

Nvidia (NVDA) and Advanced Micro Devices (AMD) both suffered sell-offs late Wednesday in extended trading after the former filed a notice with the Securities & Exchange Commission (SEC) concerning new government regulation affecting sales of its data center products to China and Russia. Nvidia said a new regime of licensing requirements from the US government would make it difficult to export some of its higher-end chips to either country.

Also read: Nvidia Stock Deep Dive Analysis: NVDA price target at $205 with strong revenue growth

NVDA stock is down 4.8% to $143.75 in Thursday's premarket, and AMD stock has declined 3.7% to $81.77.

Nvidia, AMD stock news

Nvidia says that the new licensing requirements directly affect its premium A100 and H100 integrated circuits and its Nvidia DGX server platform that utilizes those circuits. 

"The [US government] indicated that the new license requirement will address the risk that the covered products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China and Russia," reads the filing.

Due to the new licensing requirements, Nvidia can help customers to apply for exemptions but said the more likely alternative is instead to offer them lower level circuits not covered by the licenses. This could affect as much as $400 million in sales during the current quarter, the company said. Nvidia said it was working with the government but may be forced to "transition certain operations out of China."

“The new license requirement may impact the company’s ability to complete its development of H100 in a timely manner or support existing customers of A100,” the SEC filing says. “The company [...] is seeking exemptions for the company’s internal development and support activities.”

This is particularly bad news after Nvidia was forced to readjust its guidance for third quarter revenue down to $5.9 billion just last week. The market had been expecting an already reduced $6.9 billion.

For its part, AMD stock sold off after Reuters reported that management had received a similar message from government regulators to stop shipping its top artificial intelligence chip to China. In stark contrast to Nvidia's statement, however, AMD said the licensing requirement would only pertain to its MI250 chip not its MI100 chip. This substitution should mean that the new regulation would not pose a material impact to the firm's sales.

Nvidia stock forecast

If the premarket price is any authority, it sure seems Nvidia stock price is heading back toward $140.55. That is the price where NVDA stock bottomed out in the first week of July. This time it may fall through here, although Nvidia has stronger marketwide support from institutions and retail alike than nearly any other stock. The current Nvidia stock share price is well below the 4-week moving average.

NVDA is reknowned for trading at a high multiple compared with its peers. With revenue and profits expected to be revised downward due to the issue with Russia and China, all a major sell-off needs is the right analyst reducing his or her price target substantively. If NVDA stock drops below $140.55, then more support can be find in two areas. First, there is plenty of volume around $130. This level served as a base from November 2020 through February 2021. Second, the $116 to $120 region acted as a demand zone in the latter half of 2020 and through March 2021, but Nvidia stock would only make it here in the event of major capitulation.

NVDA weekly chart

AMD stock forecast

AMD stock is trending lower for its third straight week.This trend began even before the Fed chair Jerome Powell's hawkish Jackson Hole speech when AMD had trouble hanging onto the $100 psychological level. The most likely progression here is a continuation of the trend to the low $70s. The area between $71.60 and $75 has worked as support in 12 separate weeks over the past two years.

A break of $71.60 would send AMD stock down to further support at $59 but that seems only likely if the macro picture grows much worse. The Relative Strength Index (RSI) should bottom out near 30 before a reversal begins.

AMD weekly chart