The U.S. government wants Nvidia to stop sending China its most advanced AI processors.
Chip designer Nvidia (NASDAQ:NVDA) Corp. said on Wednesday that U.S. officials told it to stop exporting two of its top computing chips for artificial intelligence work to China, a move that could hinder Chinese firms’ ability to perform advanced tasks such as image recognition and hurt Nvidia’s business in China.
Shares of Nvidia slumped 6.6% in after-hours trading. The company said that the embargo, which affects its A100 and H100 processors designed to speed up machine learning tasks, could slow down work on the H100, the company’s flagship chip that came out this year.
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Advanced Micro Devices Inc. (NASDAQ:AMD) shares declined 3.7% after hours. A representative for AMD told Reuters that the business has received new licencing requirements that prohibit the shipment of its MI250 artificial intelligence processors to China, but that the MI100 chips will not be affected. AMD said that it doesn’t think the new rules will have a big effect on how it does business.
According to Nvidia, U.S. officials have informed the company that the new regulation will “address the possibility that covered items may be utilised in or diverted to a “military end use” or “military end user” in China.”
In response to a request for comment, the U.S. Department of Commerce didn’t say what the new rules are for AI chips that can’t be sent to China, but it did say that it is reviewing its rules and procedures related to China in order to “keep innovative technologies out of the wrong hands.”
A spokeswoman told Reuters, “We can’t talk about specific policy changes right now, but we’re taking a comprehensive approach to add more policies about technology, end-uses, and end-users to protect U.S. national security and foreign policy goals.”
The statement is a big step up in the U.S.’s crackdown on China’s technical skills at a time when tensions are rising over the future of Taiwan, where chips for Nvidia and almost every other major chip company are made.
Without processors from American businesses such as Nvidia and AMD, Chinese organisations will be unable to do advanced computer activities such as image and speech recognition cost-effectively.
Image recognition and natural language processing are prevalent in consumer applications such as smartphones that can respond to questions and tag photographs. They can also be used by the military to do things like look through satellite photos for weapons or bases and filter digital communications to gather intelligence.
Related: China opposes the U.S. ban on Nvidia’s sale of high-end processors to China.
This quarter, Nvidia reported $400 million in sales of impacted chips to China, which might be lost if Chinese companies choose not to purchase alternative Nvidia goods. It said that it plans to ask for exceptions to the rule, but it has “no confidence” that U.S. officials will agree.
Stacy Rasgon, a financial analyst at Bernstein, stated that the disclosure indicated that around 10% of Nvidia’s data centre sales, which investors have closely followed over the past several years, were coming from China and that the impact on Nvidia’s sales was likely “manageable.”
Rasgon stated, “It’s not a change in (investment) premise, but it’s not a nice look.” Concerning further escalations, he stated, “What happens on both sides now is the question.”
The prohibition comes after Nvidia predicted a substantial decline in sales for the current quarter due to a weakening gaming market. Nvidia projected sales of $5.90 billion for the third quarter, down 17% from the same period last year.
U.S. officials have ordered Nvidia to stop selling AI chips to China.
