U.S. Ramps Up Restrictions on Chinese Tech

The U.S. government this week issued new restrictions on the ability of U.S. technology companies to sell artificial intelligence chips to Chinese customers.  As a result, Nvidia (NVDA) said it could no longer sell high-end chips to China without a government license.  This action will thwart China’s development of a wide range of cutting-edge technologies.

The new license requirement imposed on AI chip exports to China will hurt Chinese cloud providers and automakers.  These AI chips go into large data centers to train AI models for tasks like autonomous driving, image recognition, and voice assistance.  Nvidia has a nearly 95% share of the market on AI chips, according to Fubon Securities Investment Services estimates, with the rest accounted for by Advanced Micro Devices (AMD).

An AI accelerator is a graphics processor, or GPU, specifically made to train AI models by feeding them large amounts of data.  The AI processor is better suited for such tasks than a general-purpose CPU because its architecture can do parallel work in huge volumes.  Nvidia was the first to develop the language to make GPUs do AI tasks, giving it a huge head start over rivals Advanced Micro Devices and Intel (INTC). 

The escalated trade curbs imposed by the U.S. are designed to prevent advanced AI gear from being used for or diverted to military purposes by China or Russia.  The Center for Security and Emerging Technology said almost all of the 97 AI chips in public Chinese military purchase records between April and November 2020 were designed by U.S. firms Nvidia, Intel, Microsemi Corp, or Xilinx, which is now part of Advanced Micro Devices.

The U.S. has given Nvidia a year to finish development work in China on its most advanced H100 server chip, saying it doesn’t want U.S. companies working on sensitive tech within Chinese borders.  The brunt of the impact of the trade curbs will be felt by Nvidia, which said the restrictions might cost it $400 million in the current quarter, and it may have to move some operations out of China.  Also, China’s biggest tech firms like Alibaba Group Holding, Baidu, and Tencent Holdings will be impacted as their ability to develop new products will be threatened without the continued ability to use Nvidia’s hardware.

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