Export restrictions on AI Chips: What it Means for Nvidia

On October 17th, the Biden administration updated export control regulations for artificial intelligence (AI) chips, planning to block companies like Nvidia from exporting advanced AI chips to China. The new rules will take effect after a 30-day public comment period. After the announcement, semiconductor stocks fell significantly.

Under the new rules, Nvidia's chips, including A800 and H800, will be affected for export to China. These restrictions will also affect chips sold by companies such as AMD and Intel to China, as well as chip equipment manufacturers such as Applied Materials, ASML, and KLA. This is because the new measures expand license requirements for exporting advanced chips to over 40 countries outside of China and impose licensing requirements for chip manufacturing tools on 21 other countries outside of China, expanding the list of equipment prohibited from entering these countries. In addition, the new measures aim to prevent companies from circumventing chip restrictions through chiplet stacking technology.

U.S. Secretary of Commerce Gina Raimondo stated that the new measures aim to "plug loopholes" and said that these measures may be updated at least once a year in the future. She said, "The new restrictions will only affect a small portion of chip exports to China." Chips used in consumer products such as gaming consoles or smartphones will not be subject to export controls.

Last October, the U.S. implemented bandwidth rate restrictions on exporting AI chips to China, involving Nvidia's A100 and H100 chips. Since then, Nvidia has provided alternative versions, A800 and H800, to Chinese companies. Some Chinese computer manufacturers publicly disclosed that the H800 server is identical in all respects to the H100 chip sold elsewhere in the world, except that its transmission rate is reduced to 400GB per second.

Since revenue from China accounts for about 25% of Nvidia's total revenue, in the long run, if the ban continues to tighten, it will have a relatively significant impact on Nvidia.

However, it is expected that there will be little impact in the short term:

a.Chinese buyers have already stockpiled goods in advance, prices have also risen sharply, and performance has already been reflected in the financial report;

b.Customized chips can still be sold to China as before;

c.There are reports that Nvidia received an urgent order last night and will give priority to supplying the Chinese market.