US Department of Commerce aims to restrict sales of AI chips

Company News

by Peter Milios

Nvidia has found itself in the crosshairs of expanded U.S. export controls on artificial intelligence (AI) semiconductor chips destined for China. This move by U.S. regulators could have significant implications for the company, which derives nearly one-fifth of its revenue from Chinese sales, according to its latest quarterly earnings report.

The Biden administration is reportedly set to enact measures aimed at making it more challenging for Chinese companies to acquire advanced semiconductor chips designed for AI applications. These new restrictions would widen the technical parameters of the Commerce Department's existing semiconductor chip export regulations to encompass chips created by Nvidia specifically to comply with previous guidelines governing chip sales to Chinese entities and their overseas subsidiaries.

This development comes in the wake of the U.S. introducing rules in October 2022 to curtail sales of AI-capable semiconductor chips to Chinese companies. In response, Nvidia made modifications to two of its chips to align with the imposed restrictions. The H800 semiconductor chip was introduced as a replacement for the H100, which was banned for sale in China. Additionally, the A800 chip was developed to cater to Chinese firms as a substitute for the A100. A recent Reuters report has highlighted the possibility of the H800 chip being included in the expanded restrictions.

The news of these broadened export controls initially had a slight negative impact on Nvidia's stock value, causing a fractional dip in its share price on Monday, even as the broader markets experienced gains. However, the stock made a remarkable recovery and was trading up 1% by 1 p.m. Eastern Time on the same day. It's worth noting that Nvidia's revenue from China was disclosed to be approximately $2.7 billion in the quarter ended July, constituting a significant portion of its $13.5 billion total revenue.

The latest regulatory expansion is part of a broader strategy by the U.S. government to tighten the export of AI technology. In August, Nvidia revealed in a regulatory filing that the U.S. had extended its AI chip export restrictions to cover certain Middle Eastern countries. At that time, Nvidia downplayed the immediate financial impact of these restrictions but acknowledged that they could potentially hinder the company's competitiveness in the future.

As these developments unfold, Nvidia finds itself navigating the complex landscape of international trade and technology export controls, with its business in China and AI chip market position hanging in the balance. The company's ability to adapt and comply with evolving regulatory frameworks will be closely watched by investors and industry observers in the coming months.

Peter Milios

Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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