US officials order Nvidia to stop sales of top AI chips to China

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Sept. 1 (Reuters) – Chip designer Nvidia Corp (NVDA.O) U.S. officials said on Wednesday they had ordered China to stop exporting two of its top computer chips for artificial intelligence work, which could cripple Chinese companies’ ability to perform advanced tasks such as image recognition and disrupt Nvidia’s business in the country.

The announcement signals a major expansion of the U.S. crackdown on China’s technology capabilities as tensions bubble over the fate of Taiwan, where chips for Nvidia and all other major chip companies are made.

Nvidia shares fell 6.6% after hours. The company said the ban, which affects its A100 and H100 chips designed to speed up machine learning tasks, could interfere with finishing development of the flagship H100 chip it announced this year.

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Shares of rival Advanced Micro Devices Inc (AMD.O) It fell 3.7% after hours. An AMD spokesman told Reuters it had received new licensing requirements that would prevent exports of its MI250 artificial intelligence chips to China, but hoped its MI100 chips would not be affected. AMD said it does not believe the new rules will have a material impact on its business.

Nvidia said the new rule “addresses the risk that the products may be used or diverted to a ‘military end use’ or ‘military end user’ in China.”

The US Commerce Department did not say what the new criteria would be for AI chips to no longer be shipped to China, but said it was reviewing its China-related policies and procedures to “keep advanced technologies out of the wrong hands.”

“While we cannot outline specific policy changes at this time, we are taking a comprehensive approach to implement additional measures related to technologies, end applications and end users to protect US national security and foreign policy interests,” a spokesperson told Reuters.

China’s foreign ministry responded on Thursday that the US was trying to impose a “technical blockade” on China, while its commerce ministry said such measures would undermine the stability of global supply chains.

The logo of technology company Nvidia is seen at its headquarters in Santa Clara, California on February 11, 2015. REUTERS/Robert Galbraith

“The United States continues to abuse export control measures that limit the export of semiconductor-related products to China, which China firmly opposes,” Commerce Ministry spokesman Shu Jieting told a press conference.

This is not the first time that the US has moved to stop the supply of chips by Chinese companies. In 2020, former President Donald Trump’s administration banned suppliers from selling chips made using American technology to tech giant Huawei without a special license.

Without American chips from companies such as Nvidia and AMD, Chinese companies cannot cost-effectively do the advanced computing used for image and speech recognition.

Image recognition and natural language processing are common in consumer applications such as smartphones that can answer queries and tag photos. They also have military applications, such as searching satellite images for weapons or bases and filtering digital communications for intelligence-gathering purposes.

Nvidia said it sold $400 million in sales of the affected chips to China this quarter, which companies could lose if they decide not to buy replacement Nvidia products. It said it plans to apply for exemptions.

Stacey Rascon, a financial analyst at Bernstein, said the disclosure signals that roughly 10% of Nvidia’s data center sales come from China and that Nvidia’s sales gains are “manageable.”

“It doesn’t change the (investment) thesis, but it’s not a good look,” Rascon said. “The question is what happens now on both sides.”

Nvidia last week predicted a sharp drop in revenue for the current quarter on the back of a weak gaming sector. Third-quarter sales are expected to fall 17% from the same period last year.

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(Reporting by Eva Matthews and Nivedita Balu in Bangalore, Stephen Nellis and Jane Lee in San Francisco, Karen Freifeld and Alexandra Alber in Washington, Eduardo Baptista in Beijing; Additional reporting by Beijing Newsroom; Editing by David Gregorio, Matthew Lewis and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.

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