Nvidia Reacts to Possible US Chip Restrictions to Beijing

Nvidia corporate headquarters in Santa Clara, Calif., in May 2022. Courtesy Nvidia / Reuters

Nvidia is downplaying possible U.S. chip-export restrictions to China by the Biden administration.

The Wall Street Journal reported on June 27 that the White House was mulling even more restrictions on artificial intelligence (AI) chip exports to China.

A potential chip ban could affect Nvidia’s status as the world’s leader for the graphics processors needed to build AI software like ChatGPT.

Nvidia’s latest A100 and H100 chips are highly desired by tech firms around the world to build advanced AI systems.

The U.S. Department of Commerce might stop chip shipments by Nvidia and other manufactures to customers in China as early as July, the report said.

Commerce Department Pressures Tech Firms to Halt Advanced Chip Exports to China

The White House is increasingly concerned that the company’s technology could be used for military or espionage purposes by the Chine Communist Party (CCP).

Nvidia, Micron, and AMD are the chipmakers most affected by the escalating tensions between Beijing and Washington, and they may take a multibillion-dollar hit.

The United States had already persuaded the top chip equipment manufacturers of the Netherlands and Japan to join its policy on curbing technological access to Beijing.

On the other hand, the Biden administration allowed chip makers in South Korea and Taiwan to continue operating and expanding their existing plants in China that produce older and less advanced chips.

The Commerce Department ordered the San Jose, California-based tech giant last September to stop exporting two advanced computer chips models for AI work to China.

The American embargo on exports of advanced microchips to China went into effect in October 2022, as the company saw its data-center chip added to the export control list.

Last November, Nvidia CEO Jensen Huang announced that the firm was offering an new advanced chip called the A800 to China that was lower performing and met export control rules.

The tech company later tweaked its flagship H100 chip earlier this year to comply with new regulations.

However, the latest restrictions being considered by the government would even ban the sale of A800 chips without a special U.S. export license, reported The Wall Street Journal.

Chinese Chip Market Is One of the World’s Largest

China has been one of the largest markets for semiconductors for years.

Atif Malik, an analyst at Citi, wrote in a note that last year’s restrictions on China had a $400 million impact on sales, which could rise even higher due to increased demand for chips.

“We estimate China data center sales in the 5–10 percent range of total $30 billion data center sales this year,” Malik said. “Overall, we believe AI demand will exceed supply this year and Nvidia can move its chips around.”

The new export rules are expected to have a negative effect on chip stocks, which witnessed a major investment boom in recent months due to the major advancements in AI technology.

“With an update on export controls now expected, investors will be assessing just how limiting the new rules will be for chip makers’ sales,” Susannah Streeter, an analyst at broker Hargreaves Lansdown, told Barron’s.

“A handful of tech companies pack a huge punch on Wall Street due to their sheer size, so any wobble in confidence reverberates on indexes.”

Although computer chip stocks may see a slight dip on the news, the drop in value could actually be an opportunity for investors to buy more shares of Nvidia stock, which saw an incredible 185 percent surge so far this year.

Nvidia Expects a Long-Term Impact If More Restrictions Are Added

Nvidia CFO Colette Kress said at the “Piper Sandler Webinar: Networks for AI” investor conference this week that new export rules would not have an “immediate financial impact,” but that future restrictions could impact the company’s growth.

“We are aware of reports that the U.S. Department of Commerce is considering further controls that may restrict exports of A800 and our H800 products to China,” Kress said in a statement provided to The Epoch Times.

“However, given the strength of our demand for our products worldwide, we do not anticipate that such additional restrictions, if adopted, would have an immediate material impact on our financial results,” she said.

China accounted for between 20–25 percent of the company’s data center revenue, totaling $4.28 billion in sales in the first quarter, and also included other chips, not just those used for AI, like networking parts, noted Kress.

Kress also warned about the impact on the company’s growth prospects.

“Over the long term, restrictions prohibiting the sale of our data center products to China, if implemented, we will result in a permanent loss of opportunities for the U.S. industry to compete and lead in one of the world’s largest markets. And the impact on our future business and financial results is there,” Kress continued.

Reuters contributed to this report.