Chip maker Nvidia Corp (NVDA.O) said on August 31 that U.S. officials told it to suspend exporting two leading chips for artificial intelligence work to China, a move that could impede Chinese firms’ ability to perform advanced work like image recognition and cripple Nvidia’s business in the country.
The announcement indicates a major rise in the U.S. crackdown on China’s technological capabilities as tensions spill over the fate of Taiwan, where chips for Nvidia and almost all other leading chip firms are built.
Shares of Nvidia slid 6.6% after hours. The company said the ban, which affects H100 and A100 chips developed to speed up machine learning tasks, could hamper the completion of designing the H100, the flagship chip it released this year.
Shares of peer Advanced Micro Devices Inc (AMD.O) slid 3.7% after hours. A spokesman for AMD told Reuters it had gotten new license requirements that will suspend its MI250 artificial intelligence chips from being exported to China but it expects its MI100 chips will not be affected. AMD said it does not think the new rules will significantly impact its business.
Nvidia said U.S. officials told it the new rule “will address the risk that products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China.”
The U.S. Department of Commerce would not say what new criteria it has set for AI chips that can no longer be exported to China but said it is assessing its China-related policies and practices to “keep advanced technologies out of the wrong hands.”
A spokesperson told reporters:
“While we are not in a position to outline specific policy changes at this time, we are taking a comprehensive approach to implement additional actions necessary related to technologies, end-uses, and end-users to protect U.S. national security and foreign policy interests.”
The Chinese foreign ministry responded on Thursday by blaming the United States for seeking to impose a “tech blockade” on China, while its commerce ministry said such actions would diminish the stability of global supply chains.
“The U.S. continues to abuse export control measures to restrict exports of semiconductor-related items to China, which China firmly opposes,” commerce ministry spokesperson Shu Jieting said at a news conference.
This is not the first time the U.S. has moved to stop Chinese firms’ supply of chips. In 2021, former president Donald Trump’s administration barred suppliers from selling chips designed using U.S. technology to tech giant Huawei without a special license.
Without American chips from companies like AMD and Nvidia, Chinese organizations will be unable to cost-effectively conduct the kind of advanced computing used for speech and image recognition, among many other tasks.
Natural language processing and image recognition are common in consumer applications like smartphones that can tag photos and answer queries. They also have military uses such as filtering digital communications for intelligence-gathering reasons and searching satellite imagery for bases or weapons.
Nvidia said it recorded $400 million in sales of the affected chips this quartered to China that could be lost if companies resolve not to purchase alternative Nvidia products. It said it intends to request exemptions to the rule.
Stacy Rasgon, a financial analyst with Bernstein, said the disclosure indicated that about 10% of Nvidia’s data center sales were derived from China and that the hit to sales was probably “manageable” for Nvidia.
“It’s not (investment) thesis changing, but it’s not a good look. What happens on both sides now is the question.”
Nvidia last week forecast a steep fall in revenue for the current quarter on the back of a slower gaming industry. It said it anticipated third-quarter sales to drop 17% compared to the same period last year.