Morning Blast: Tighter Chip Export Rules Hit Nvidia, AMD; BlackRock Looks Good for Bitcoin ETF


Premarket action on Wednesday had the three major U.S. indexes trading mixed. While the Dow Jones industrials were up 0.07%, the S&P 500 was down 0.07% and the Nasdaq 0.21% lower.

Last September, the Biden administration instituted restrictions on sales to China of U.S. companies’ most advanced semiconductors. Nvidia Corp. (NASDAQ: NVDA) soon began working on a version of its top-of-the-line A100 chip that would restrict the chip’s performance in artificial intelligence applications. The lower-performing A800, as it is known, could then be approved for sale into the Chinese market.

After markets closed on Tuesday, The Wall Street Journal reported that the U.S. Department of Commerce is considering a ban on the A800 chip as well and that the tighter standard also could curb sales of Advanced Micro Devices Inc. (NASDAQ: AMD) recently announced MI300X chip. In order to export AI chips to China, chipmakers would be required to get a license from the Commerce Department.

According to The Wall Street Journal report, the Biden administration is also considering restrictions on leasing cloud services to Chinese AI companies. Leasing cloud services from U.S.-based services that are not subject to the restrictions removes the roadblock on the A100 and MI300X.

Nvidia gets about 20% of its total revenue from sales to China. When the export rules were introduced last September, CEO Jensen Huang said the restrictions would cost his company $400 million in revenue. Nvidia reported $5.93 billion in revenue for the October quarter and that number had grown to $7.19 billion for the most recent (April) quarter. Analysts estimate that Nvidia will post revenue of $11 billion in the quarter ending in July and $12.65 billion in the quarter ending in October. That is a near doubling of revenue in one year.

In fiscal year 2022, AMD reported revenue of $23.6 billion. China and Hong Kong accounted for $5.2 billion (22%) of the total, second only to U.S. revenue of $8.05 billion (34%). The more advanced AI chips would presumably have boosted AMD’s revenue from China.

Bitcoin futures jumped above $30,000 last week on reports that big banks and other financial services firms were applying to create Bitcoin ETFs that track the spot price of the cryptocurrency. The Securities and Exchange Commission has rejected every application for such a fund because spot trading takes place on unregulated exchanges and raised the risk of manipulation and fraud for investors.

But the Financial Times reported Tuesday that asset manager BlackRock Inc. (NYSE: BLK), which has applied to offer a spot Bitcoin ETF, may be the first firm to be approved for such an investment.

BlackRock’s track record for winning approvals for its ETFs (575 wins vs. 1 loss) aside, the proposed iShares Bitcoin Trust would be listed on the Nasdaq Exchange. The exchange “is expecting to enter into a surveillance-sharing agreement with an operator of a United States-based spot trading platform for bitcoin,” according to BlackRock’s application. The SEC rejected an application for a spot Bitcoin ETF from Bitwise last year, specifically citing the absence of a surveillance-sharing agreement with a U.S. spot trading platform. Of course, the SEC could move the goalposts.

Here is a look at how U.S. markets fared on Tuesday.

Ten of 11 market sectors closed higher on Tuesday. Consumer cyclicals (2.06%) and technology (2.04%) posted the day’s best gains. Health care (−0.20%) posted the day’s only loss. The Dow closed up 0.63%, the S&P 500 up 1.15% and the Nasdaq up 1.65% on Tuesday.

Two-year Treasuries added nine basis points to end Tuesday at 4.74%, and 10-year notes added five basis points to post a rate of 3.77%. In Wednesday’s premarket, two-year notes were trading at around 4.73% and 10-year notes at about 3.74%.

After U.S. markets closed on Tuesday, the American Petroleum Institute reported that U.S. commercial crude oil inventories fell by 2.4 million barrels last week, the second consecutive weekly decline. The U.S. Energy Information Administration will release its petroleum inventory report after markets open Wednesday. For the prior week, ending on June 17, the commercial crude inventory fell by 3.8 million barrels. Crude oil prices have fallen to around $67 a barrel.

After markets close on Wednesday, the Federal Reserve is expected to release the results of its latest stress tests on the largest U.S. banks.

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