Nvidia Corp, a chip designer, said on Wednesday that U.S. officials told it to stop exporting two top computing chips for artificial intelligence work to China, a move that could cripple Chinese firms’ ability to perform advanced work such as image recognition and harm Nvidia’s business in China.
Nvidia’s stock dropped 6.6% after hours. The ban, which affects its A100 and H100 chips designed to accelerate machine learning tasks, could impede the completion of the H100, Nvidia’s flagship chip announced this year, according to the company.
After hours, shares of Nvidia rival Advanced Micro Devices Inc fell 3.7%. According to an AMD spokesman, the company has received new license requirements that will prevent its MI250 artificial intelligence chips from being exported to China, but the company believes its MI100 chips will be unaffected. AMD stated that it does not believe the new rules will have a significant impact on its operations.
According to Nvidia, the new rule “will address the risk that the covered products will be used in, or diverted to, a’military end use’ or’military end user’ in China,” according to US officials.
When asked for comment, the US Department of Commerce said it is reviewing its China-related policies and practices in order to “keep advanced technologies out of the wrong hands.”
“While we are not in a position to outline specific policy changes at this time,” a spokesperson told Reuters, “we are taking a comprehensive approach to implementing additional actions necessary related to technologies, end-uses, and end-users to protect US national security and foreign policy interests.”
The announcement marks a significant increase in the United States’ crackdown on China’s technological capabilities, as tensions rise over the fate of Taiwan, where chips for Nvidia and nearly every other major chip firm are manufactured.
Without American chips from companies such as Nvidia and AMD, Chinese organizations will be unable to perform advanced computing tasks such as image and speech recognition, among others, at a reasonable cost.
Consumer applications such as smartphones that can answer questions and tag photos use image recognition and natural language processing. They also have military applications, such as searching satellite imagery for weapons or bases, as well as filtering digital communications for intelligence gathering.
Nvidia stated that it had booked $400 million in sales of the affected chips to China this quarter, which could be lost if Chinese firms do not purchase alternative Nvidia products. It stated that it intends to seek exemptions from the rule but has “no assurances” that US officials will grant them.
According to Stacy Rasgon, a Bernstein financial analyst, the disclosure indicated that about 10% of Nvidia’s data center sales, which investors have closely monitored in recent years, were coming from China, and that the hit to sales was likely “manageable” for Nvidia.
“It’s not changing the (investment) thesis, but it’s not a good look,” Rasgon said. “What happens on both sides now is the question,” he said of potential future escalation.
The chip ban comes after Nvidia forecasted a sharp drop in revenue for the current quarter due to a weaker gaming industry last week. Nvidia predicted third-quarter sales of $5.90 billion, a 17% decrease from the same period last year.
