Semiconductor names have had a good start to an otherwise-quiet Monday session, but AMD (AMD 29.01, -0.09, -0.3%) is trailing the pack once again after losing 3.0% on Friday.
Shares of AMD were pressured on Friday after the Department of Commerce added several Chinese entities to a list that bars these entities from purchasing supplies from vendors in the United States without government approval.
A joint venture between AMD and Tianjin Haiguang Advanced Technology Investment Company (THATIC) was named in the updated blacklist. The joint venture specializes in selling processors to the server market in China and the Department of Commerce determined that these processors could be used "in activities contrary to the national security and foreign policy interests of the United States."
AMD established the joint venture in 2016 and the venture began producing processors two years later. AMD CEO Lisa Su said in early June that AMD will not license its next generation of processors to the joint venture, but that was not enough to prevent the Department of Commerce from blacklisting THATIC.
AMD expected to generate $293 million plus royalties from the venture. While this is not a large amount for a company like AMD, the decision to blacklist AMD's joint venture increases the risk that the administration could take additional steps that will make it more difficult for AMD to sell its products in China. A move toward a general ban on sales of CPUs and GPUs to customers in China would promptly catch the market's attention, considering nearly 40% of AMD's 2018 revenue came from China and Taiwan.
AMD made significant strides in recent months, resulting in a rapidly expanding multiple. With the stock trading at 36.2x forward earnings expectations at a time when the semiconductor market has yet to find a bottom, investors should be aware of potential risks that could significantly reduce future earnings expectations. While Friday's announcement from the Department of Commerce is unlikely to have an immediate impact on earnings estimates, it does show that the administration is concerned with China's access to the U.S. technology sector. Besides AMD, Intel (INTC 47.68, +0.22, +0.5%) and NVIDIA (NVDA 153.39, +1.63, +1.1%) could also find themselves in the regulatory spotlight.