(Bloomberg) -- The latest US effort to restrict chip exports to China from Nvidia Corp. and Advanced Micro Devices Inc. sparked concern that escalating government actions could cut off some of the semiconductor industry’s biggest companies from the largest market for their products.

Nvidia’s stock tumbled as much as 12% on Thursday after warning that new rules on the export of some artificial-intelligence chips to China may affect hundreds of millions of dollars in revenue. The Philadelphia Stock Exchange Semiconductor Index shed as much as 2.5%, adding to losses that have wiped out a third of its valuation this year. 

US companies are under increasing government scrutiny over what they sell to China, whose electronics factories and consumers make it the biggest buyer of chips. Washington has been tightening restrictions on sales to the country, arguing that it represents a security risk. China has been trying to build its own domestic capabilities to become less dependent on the US, which still dominates design and manufacturing technology needed to make the vital electronic components.

Washington’s actions against China have been concentrated on individual companies that it has accused of being bad actors, such as Huawei Technologies Co. But it’s now shifting slowly toward broader initiatives such as restricting the supply of certain types of advanced chipmaking equipment. Halting the provision of entire classes of chips to China would mark a greater escalation that would hurt the Asian country’s economy and potentially crater sales for some US companies. 

Nvidia’s stock dropped to an intraday low of $132.70 following the disclosure Wednesday that Nvidia’s A100 and forthcoming H100 products will require approval from the US government before they can be sold to Chinese customers. It was the biggest intraday decline since March 2020.

In a separate filing on Thursday, Nvidia said the US government has authorized it to “perform exports needed to provide support for US customers of A100 through March 1, 2023.” Nvidia has also been granted permission to transfer necessary technology to China for the development of its upcoming H100 products. These exports are authorized to be conducted through the US chipmaker’s Hong Kong facility through Sept. 1, 2023, according to the filing. 

That statement did little to assuage investors, who fear a big chunk of Nvidia’s sales are at risk. The company warned in its initial statement that the restrictions may cost it $400 million in revenue this quarter. The time limitations laid out in Thursday’s filing -- as well as the fact there was no mention of any license for Chinese customers -- suggested the US government is determined to clamp down on access to technology it deems could be misused for military purposes. 

Nvidia relies on the Asian country for about a quarter of its revenue, and the temporary easing likely doesn’t allow it to sell the chips to some of the biggest buyers of that type of technology -- Chinese hyperscalers, companies that operate giant data centers full of server chips. 

What the authorization does do, crucially, is allow Nvidia to use Chinese engineers and operations to complete development of its H100 chip, its latest piece of technology for the market.  

“If Nvidia is unable to complete H100 development, the knock-on effects would likely be much larger than the direct revenue exposure in the current quarter,” Matt Ramsay, an analyst at Cowen & Co., wrote in a report. 

Read more: Nvidia gives weak forecast, adding to concerns of chip slump

“We are working with our customers in China to satisfy their planned or future purchases with alternative products and may seek licenses where replacements aren’t sufficient,” the company said on Wednesday. “The only current products that the new licensing requirement applies to are A100, H100 and systems such as DGX that include them.”

AMD said Wednesday that it received a similar notice from the government, though it doesn’t expect a significant impact. “At this time, we do not believe that shipments of MI100 integrated circuits are impacted by the new requirements,” the company said in a separate statement.

According to Nvidia’s Wednesday filing, the government’s new rules specify chips with certain performance capabilities.

The rules apply to both China and Russia, though Nvidia and AMD no longer sell to Russia.

Separately, Intel Corp., the US’s biggest chipmaker, which is bringing to market a competitive product to those highlighted by the latest action by Washington, said it hasn’t been impacted by the new rules.

“While we understand the US Government is continuing to look at new restrictions, no new export control rules have been published and there are currently no changes to our business,” Intel said in a statement. “We are closely monitoring the process.”

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