U.S. Announces Stricter AI Chip Export Rules to China, Affecting Chip Stocks

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The U.S. Department of Commerce disclosed on Tuesday its plans to tighten regulations on the sale of more advanced artificial intelligence chips to China in the upcoming weeks. This move aims to address loopholes that emerged following restrictions imposed on AI chip exports last year. Shares of major chip stocks experienced declines in Tuesday’s trading session in response to this announcement. Nvidia saw a 5% drop in its stock price, while Broadcom and Marvell slipped approximately 2% and 1%, respectively. AMD shares fell more than 1%, and Intel closed down by about 1.4%.

The previous restrictions had banned the sale of the Nvidia H100, the preferred processor for U.S. AI firms like OpenAI. Chinese companies resorted to purchasing a slightly slower version known as the H800 or A800 to comply with U.S. restrictions, achieved primarily by reducing an on-device connection speed called an interconnect.

The newly proposed rules will also prohibit the sale of these alternative chips, according to senior administration officials. These restrictions could have implications for chips sold by Intel and AMD, and additional rules may hinder the sale and export of semiconductor manufacturing equipment to China, impacting companies such as Applied Materials, Lam, and KLA.

The implementation of these restrictions will close a significant and growing market for AI semiconductors and could raise concerns of economic retaliation by the Chinese government against U.S. companies conducting business in China.

Nvidia had evidently anticipated these restrictions, stating in August that they might not have an immediate material impact on earnings but could affect the company over the long term. An Nvidia spokesperson reassured, “We comply with all applicable regulations while working to provide products that support thousands of applications across many different industries. Given the demand worldwide for our products, we don’t expect a near-term meaningful impact on our financial results.”

The Commerce Department announced that these restrictions would apply to Nvidia’s A100, A800, H100, H800, L40, L40S, and RTX 4090 chips. The rules would also encompass entire systems sold with these chips, including Nvidia’s DGX and HGX systems. Nvidia expressed concerns that these restrictions might hinder the development of new products on schedule.

The primary objective of these U.S. restrictions is to prevent China from accessing advanced semiconductors that could drive advancements in artificial intelligence, particularly for military purposes, stated U.S. Commerce Secretary Gina Raimondo. The intention is not to impede Chinese economic growth, U.S. officials clarified.

The U.S. intends to restrict the export of data centre chips that exceed specified performance thresholds, both established last October and a new performance density threshold measured in flops per square millimetre. Companies seeking to export AI chips to China or other embargoed regions will need to notify the U.S. government.

The Commerce Department also plans to expand the list of semiconductor manufacturing equipment subject to U.S. restrictions. Notably, chips for consumer products like game consoles or smartphones will not be subject to these export controls, although companies may need to inform the Commerce Department about their orders if the chips meet certain performance criteria.

The U.S. government will also address loopholes related to shipping chips to companies headquartered in China or other embargoed regions, such as Macao, to prevent circumvention where foreign subsidiaries acquire chips and transfer them to China.

Secretary Raimondo asserted that the new restrictions would only impact a small fraction of chip exports to China and emphasized that even after these rule updates, China would continue to import billions of dollars worth of semiconductors from the United States.

The rules will be open for public notice for 30 days before going into effect, as confirmed by U.S. officials.