The U.S. Department of Commerce has unveiled plans to tighten restrictions on the export of advanced artificial intelligence (AI) chips to China, as part of an effort to curb potential security risks. The move comes as the U.S. government aims to close the loopholes that emerged after restrictions on AI chip exports were first imposed last year.
In response to this announcement, shares of several chip stocks took a hit during Tuesday’s trading. Nvidia, one of the leading players in the AI chip market, saw its stock close down approximately 5%, while other major chip manufacturers such as Broadcom and Marvell slipped around 2% and 1%, respectively. Additionally, shares of AMD fell more than 1%, and Intel closed down about 1.4%.
The previous set of restrictions prohibited the sale of the Nvidia H100, a preferred processor for AI companies in the U.S., such as OpenAI. However, Chinese companies found a workaround by purchasing a slightly downgraded version known as the H800 or A800, which complied with U.S. restrictions mainly by reducing the device’s connection speed, or interconnect.
Under the new rules, even these slightly slowed-down chips will be banned, according to senior administration officials during a briefing with reporters.
The expanded restrictions may also affect chips sold by other prominent manufacturers, including Intel and AMD. Furthermore, other rules are expected to hinder the sale and export of semiconductor manufacturing equipment from companies such as Applied Materials, Lam, and KLA to China.
These restrictions are set to impact a substantial and growing market for AI semiconductors. They may also raise concerns that the Chinese government could respond with economic retaliation against U.S. companies operating in China.
Nvidia appears to have anticipated these restrictions, as it stated in August that they would not have an immediate material impact on earnings, but could potentially affect the company over the long term.
The goal of these U.S. restrictions is to prevent Chinese access to advanced semiconductors that could potentially drive advancements in artificial intelligence, particularly in the realm of military applications. U.S. Commerce Secretary Gina Raimondo emphasized that these restrictions are not intended to harm Chinese economic growth but are rather focused on controlling access to computing power that could be leveraged for military purposes.
Under the new rules, the U.S. will restrict the export of data center chips if they exceed specific performance thresholds set in October of last year or surpass a new performance density threshold measured in flops per square millimeter. Companies wishing to export AI chips to China or other embargoed regions will be required to notify the U.S. government.
Senior administration officials have also expressed their intention to expand the list of semiconductor manufacturing equipment subject to U.S. restrictions.
Notably, chips intended for consumer products, such as game consoles or smartphones, will not be subject to these export controls. However, companies may need to inform the Commerce Department about their chip orders if they meet certain performance criteria.
The U.S. government is also closing loopholes related to the shipment of chips to companies headquartered in China or other embargoed regions, with the aim of preventing foreign subsidiaries from acquiring chips and then supplying them to China.
Raimondo clarified that the new restrictions are only expected to affect a small portion of chip exports to China and emphasized that China will continue to import billions of dollars’ worth of semiconductors from the United States.
The rules are set to be available for public review for 30 days before taking effect, according to U.S. officials.
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