A fresh round of U.S. export restrictions on China’s AI capabilities has caught NVIDIA Corp. NVDA off guard, with ETFs with high exposure to the chip giant are feeling the pain (or gain, in some cases). While Nvidia plummeted 6.87% by market close Wednesday, some semiconductor-themed ETFs moved sharply.
The unexpected regulatory shock, preventing Nvidia from sending its high-margin H20 AI chips to China, has triggered a broader selloff in the tech-heavy sector, rekindling arguments on geopolitical risk, earnings visibility, and the role of ETFs in escalating such shocks.
Advanced Micro Devices Inc.’s AMD MI308 chips also come under the new licensing regime and fell 6%, adding to the broader pressure across chipmakers.
The ripple effects were most apparent in semiconductor and Nvidia-focused ETFs, many of which took deep intraday losses — while inverse products registered explosive gains.
GraniteShares 2x Short NVDA Daily ETF NVD skyrocketed more than 13% on Wednesday, with short selling in Nvidia paying off during the rout. The fund, providing 2x inverse daily leverage on Nvidia’s stock, has been a most significant volatility trade during earnings and regulatory events.
Strive U.S. Semiconductor ETF SHOC fell over 4%. SHOC, with its heavy weighting in fabless semiconductor companies such as Nvidia (23% weightage) and AMD (4.74% weightage), is especially susceptible to revenue shock from export policy shifts.
VanEck Fabless Semiconductor ETF SMHX fell more than 3%, following the general market jitters. Nvidia is one of the key holdings in SMHX, with the biggest weightage of 21.4%, making it extremely sensitive to any slowdown in AI chip sales.
These movements represent how closely ETFs have become tied to a few megacap tech narratives — rendering them both effective and vulnerable vehicles for sector bets.
Markets soured on Wednesday following the U.S. government’s decision to tighten AI chip exports to China and arms-embargoed countries. Nvidia, whose H20 chips were specifically designed to meet prior export controls, announced that it will incur a $5.5 billion charge for excess inventory, purchase commitments, and reserves — essentially discounting the failure of its China-facing H20 strategy.
Crafted specifically to meet previous export regulations under the Biden administration, the H20 chip was made China-sale-specific and had enabled Nvidia to keep a firm grip on the market despite continued tensions. In 2024 alone, the chips were estimated to have brought in $12 billion to $15 billion in revenue.
The new measures now make the old playbook dated. AMD also conceded the blow in a Wednesday report, cautioning that restrictions on its MI308 chips could generate an $800 million revenue blow.
The new regulations — universally regarded as a crackdown on loopholes — will likely impact Nvidia’s fiscal 2026 revenue by 6%–10%, Bank of America analyst Vivek Arya estimated. While Arya labeled the risks “manageable” and reaffirmed a Buy rating with a $160 price target, the market reaction was swift and severe.
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In spite of the carnage on the day, some analysts are of the view that the sell-off can provide a tactical entry. Bank of America’s Arya noted Nvidia is currently trading at about 20 times estimated 2025 earnings — less than its historical valuation range of 23x–25x — and that its future GB300 Blackwell Ultra chips have the potential to re-spark the growth story by the second half of 2025.
Yet, near-term volatility is unlikely to fade, especially with geopolitics now a key driver of chipmaker valuations.
ETF investors, meanwhile, face a tough balancing act: whether to double down on U.S. AI chip dominance or hedge against further policy shocks that could derail near-term earnings.
One thing is clear — Nvidia’s dominance may still be intact, but its ETF exposure just made a lot more complicated.
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