Semis Slide on Report of an AI Chip Exports to China Ban, Powell and Lagarde at ECB Forum 6/28/23

SPEAKER_1 (0:00)

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Jim Cramer (0:31)

It's Jim Cramer here. You're listening to the opening bell of CNBC's Squawk on the Street. Don't miss a minute of the action.

Carl Quintanilla (0:39)

Good Wednesday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with David Faber, Mike Santoli, a post nine of the New York Stock Exchange. Cramer has the morning off. Big day for macro as Powell and other central bankers speak in Portugal on a panel moderated by our own Sara Eisen. Meantime, the president speaks on economics the day after the best day for the economic surprise index.

Since February, a roadmap begins with chip stocks though, under pressure reports of a potential new US ban on AI chip exports to China.

David Faber (1:07)

Plus Microsoft versus the FTC or the other way around continues today. Satya Nadella, Microsoft CEO, Bobby Kotick, Activision CEO will both testify in court today. Again, as the FTC tries to block that merger.

And as recession risks linger, President Biden is looking to claim credit for the post pandemic economic recovery in a so-called major economic speech. That'll be later today.

Carl Quintanilla (1:32)

Let's begin though with Nvidia and other chip makers falling in the pre-market. According to the Journal today, the Biden Administration is considering some new restrictions on exports of AI chips to China. The Commerce Department would put the curbs into effect as soon as early July. And this comes amid concerns that China could use those chips for weapons development, hacking and this budding story, Mike, about a black market for the chips where they can't get them legitimately, but players are willing to pay a lot more to get them on the second hand market.

Mike Santoli (2:00)

Yeah, the street trying to run the numbers in terms of potential impact on Nvidia, varying saying 10 to 15% of revenue might fall under this category. Details not determined. We don't know what kinds of products are gonna be included. To me, the main immediate takeaway is that semis have been a leading sector. Nvidia has been the absolute vehicle for enthusiasm over AI. That's been the thing that's gotten the market to this point in terms of the market cap weighted indexes. It was already in somewhat pullback mode, trying to cool off, massively overbought. It's like 22 times forward sales. We can all talk about what the wild evaluations are at a trillion dollar market cap. So this is another excuse on a day that Micron's gonna be reporting to say, what have we already priced in to this area?

And that's the challenge at the open after yesterday's decent rally and very broad one in terms of the overall market and the NASDAQ included.

Carl Quintanilla (2:57)

Meantime, keeping our eye on not just the recovery that isn't happening in China, but some fresh data this morning on industrial profits there. Running at a down 18.8 on an annual basis, youth unemployment up to 20% plus.

So they've got challenges beyond export curbs.

Mike Santoli (3:15)

And it's been really the part of the global bullish story economically that coming into this year has just simply been absent. And so I think almost in a sense, the market has tried to move beyond it and started looking toward, okay, what is it gonna mean for China stimulus and how is that gonna recharge things? So for now, it hasn't necessarily had much of a bite in terms of the overall case here because US numbers continue to hold up okay.

People are figuring, okay, it looks like kind of shallow recession in Europe. We've gotten these before.

So not great, not a great situation, but I think to me, it's more about, semis have punched above their weight in terms of what the market has done.

Nvidia has punched above its weight in terms of what semis have done. So that's the immediate challenge. It's all very orderly. Even the pullback in the S&P we got over the prior week or so from the 14-month high was like not even 3% on an intraday basis. Probably has a little more to go sideways or chop lower. If you look at the way the market's kind of accrued its gains this year, it's four-week sprint higher than pullback sideways. We've had the four-week sprint, I don't think a week and down 2% is enough necessarily to reload.