The imposition of the latest US export restrictions on high-end chips could impact Nvidia significantly. A potential cancellation of orders to China worth billions of dollars slated for next year is on the lines.
The new curbs, designed to limit the advancement of China’s military capabilities with artificial intelligence (AI), have prompted Nvidia to reallocate its advanced AI computing systems to other international customers and halt new AI chip orders from China.
These restrictions, effective immediately, mandate companies producing AI chips surpassing a specific performance benchmark to acquire a license from the US Commerce Department before exporting to China and other countries of concern.
The chipmaking giant Nvidia is expected to be the hardest hit, given that its AI chips are among the most advanced and widely used. Despite the immediate impact on its business, Nvidia does not foresee a significant short-term effect on its results, citing robust global demand for its products.
However, analysts predict a long-term impact on sales.
Earlier this month, Morgan Stanly warned:
“The broad-based license requirements in the gray area create more material uncertainty for a region driving 20%-25% of demand.”
The new chip restrictions enacted by the US Commerce Department aim to limit Chinese access to American semiconductors. However, these restrictions will not apply to chips used in consumer electronics such as smartphones, laptops, and gaming devices. The rules, designed to curb China’s military advancement, particularly in AI, will become effective in 30 days.
There are concerns that advanced chips in Chinese hands could lead to more potent weapons and military strategies. In turn, this could pose a higher threat to US national security.
Consequently, companies must now notify the government when exporting chips with speeds of more than 300 teraflops.
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The restrictions follow the discovery of loopholes in the export controls proposed by the Biden administration last year. Nvidia, Intel, and Qualcomm have voiced their concerns that the restrictions could hamper revenues to construct factories in the US.
Specifically, 20-25% of Nvidia’s data center revenue, which includes AI-focused chips such as the A800 and H800, comes from China. These chips, although less powerful than their American counterparts, can be used to train AI models.
