US officials order Nvidia to halt sales of its best AI chips to China

Sept 1 (Reuters) – Chip designer Nvidia Corp (NVDA.O) He said on Wednesday that US officials had asked it to stop exporting two of its top computing chips for AI work to China, a move that could cripple Chinese companies’ ability to carry out advanced work such as image recognition and hamper Nvidia’s business in the country.

The announcement marks a significant escalation of the US crackdown on China’s technological capabilities as tensions rise over the fate of Taiwan, where chips are made for Nvidia and nearly every other major chip company.

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

Shares of its competitor Advanced Micro Devices Inc (AMD.O) It fell 3.7% after hours. An AMD spokesperson told Reuters that it has received new licensing requirements that prevent the export of MI250 AI chips to China but believes that MI100 chips will not be affected. AMD said it does not believe the new rules will have a material impact on its business.

Nvidia said US officials told it the new rule would “address the risk of the products being used or diverted to ‘military end-use’ or ‘military end-use’ in China.”

The US Commerce Department did not specify the new standards it has set for AI chips that can no longer be shipped to China, but said it is reviewing its policies and practices regarding China “to keep advanced technologies out of the wrong hands.”

“Although we are not in a position to identify specific policy changes at this time, we are taking a comprehensive approach to implement the necessary additional measures related to technologies, end uses and end users to protect the national security of the United States and foreign policy interests,” a Reuters spokesperson told Reuters.

China’s Foreign Ministry responded on Thursday by accusing the United States of trying to impose a “technological blockade” on China, while the Chinese Ministry of Commerce said such measures would undermine the stability of global supply chains.

“The United States continues to abuse export control measures to restrict exports of semiconductor-related materials to China, which China firmly opposes,” said Ministry of Commerce spokesman Xu Jieting at a press conference.

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

Without US chips from companies like Nvidia and AMD, Chinese organizations would not be able to cost-effectively implement the kind of advanced computing used for image and speech recognition, among many other tasks.

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

Nvidia said it booked $400 million in sales of affected chips this quarter to China that could be lost if companies decide not to buy replacement Nvidia products. She said she intends to apply for exemptions from the rule.

Bernstein financial analyst Stacy Rasgon said the disclosure indicated that about 10% of Nvidia’s data center sales come from China and that the damage to sales was likely “manageable” for Nvidia.

“It’s not a shifting (investment) thesis, but it’s not a good outlook,” Rasgon said. “What’s happening on both sides now is the question.”

Nvidia last week forecast a sharp decline in revenue for the current quarter on the back of a weak gaming industry. It said it expected third-quarter sales to fall 17% from the same period last year.

Additional reporting by Eva Matthews and Nevdita Palu in Bengaluru, Stephen Niles and Jane Lee in San Francisco, Karen Freifeld in New York, Alexandra Alper in Washington and Eduardo Baptista in Beijing; Additional reporting from the Beijing Newsroom; Editing by David Gregorio, Matthew Lewis and Kim Coogle

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