The possibility of new US restrictions on AI chip exports to China "is now turning into almost a geopolitical economic warfare issue," says one Wall Street strategist.
Reports that the US Commerce Department could impose more export restrictions on the most advanced semiconductors with artificial intelligence capability would likely have implications for China’s economic growth and military advancements.
"It’s not only targeting future economic growth. But it’s also very, very military AI-specific, which is the new frontier," Ted Mortonson, technology desk sector strategist at Baird, told Yahoo Finance on Wednesday.
"Whenever we restrict economic sovereignty of a country, it becomes a pretty big red line [for China]."
Any new restrictions would be on top of ones that were announced last year on machinery to make the most advanced chip technologies, as well as Nvidia’s A100 and H100 circuits for very deep generative AI loads.
“Nobody knows how deep these [restrictions] are going to go,” said Mortonson. "But I think it's very obvious it's now become an economic policy to not let China have our most advanced silicon technology."
On Wednesday, both stocks were down slightly.
Mortonson said that China represents 25% to 30% of total revenue exposure for both companies. "It's probably a headwind on core growth," said Mortonson.
It's unclear how China would react to new restrictions, but Mortonson says investors can expect retaliatory action from Beijing against US companies.
"China controls a lot of the supply of other products into the US. They're not going to sit back here. They'll strike back at the US in other ways," said the strategist.
"They'll go after some US companies that have very, very, big businesses," he added.
Ines is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre