US officials order Nvidia to stop selling top AI chips to China

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September 1 (Reuters) – Chip designer Nvidia Corp (NVDA.O) said on Wednesday that US officials told it to stop exporting two top computer chips for artificial intelligence work to China, a move that could hinder the ability of Chinese companies to perform advanced work such as image recognition and hinder Nvidia’s activities in could hinder the country.

The announcement signals a major escalation in US crackdown on China’s technological capabilities, as tensions bubble over the fate of Taiwan, which manufactures chips for Nvidia and nearly every other major chip maker.

Nvidia shares fell 6.6% after hours. The company said the ban, which affects the A100 and H100 chips designed to accelerate machine learning tasks, could hinder development of the H100, the flagship chip it announced this year.

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Shares of Rival Advanced Micro Devices Inc (AMD.O) decreased by 3.7% after closing time. An AMD spokesperson told Reuters that it has received new licensing requirements that will stop the export of its MI250 artificial intelligence chips to China, but it believes its MI100 chips will not be affected. AMD said it does not believe the new rules will have a material impact on its operations.

Nvidia said US officials said the new rule will “address the risk that products could be used in or diverted to a ‘military end-use’ or ‘military end-user’ in China.”

The US Department of Commerce declined to say what new criteria it has set for AI chips that can no longer be shipped to China, but said it is reviewing its China-related policies and practices to “keep advanced technologies out of the wrong hands.”

“While we are unable to outline specific policy changes at this time, we are taking a comprehensive approach to implement additional actions needed with regard to technologies, end-uses and end-users to protect U.S. national security and foreign interests.” policies,” a spokesperson told Reuters.

China’s foreign ministry responded Thursday by accusing the United States of attempting to impose a “technical blockade” on China, while the commerce ministry said such actions would undermine the stability of global supply chains.

Technology company Nvidia’s logo is seen at its headquarters in Santa Clara, Calif., Feb. 11, 2015. REUTERS/Robert Galbraith

“The US continues to abuse export control measures to restrict the export of semiconductor-related items to China, which China strongly opposes,” Commerce Ministry spokesman Shu Jieting said at a news conference.

This is not the first time the US has tried to choke the supply of chips from Chinese companies. In 2020, the administration of former President Donald Trump banned suppliers from selling chips made with US technology to tech giant Huawei without a special license.

Without US chips from companies like Nvidia and AMD, Chinese organizations won’t be able to cost-effectively perform the kinds 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 questions and tag photos. They also have military applications, such as searching satellite images for weapons or bases and filtering digital communications for intelligence gathering.

Nvidia said it had booked $400 million in sales of the affected chips to China this quarter, which could be lost if companies decide not to buy alternative Nvidia products. It said it plans to request exceptions to the rule.

Stacy Rasgon, a financial analyst at Bernstein, said the disclosure indicated that about 10% of Nvidia’s data center sales came from China and that the hit on sales was likely “manageable” for Nvidia.

“It’s not an (investment) thesis that’s changing, but it doesn’t look good,” Rasgon said. “What’s happening on both sides now is the question.”

Nvidia last week forecast a sharp drop in revenue for the current quarter due to a weaker gaming industry. It said it expected third-quarter sales to fall 17% from the same period last year.

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Reporting by Eva Mathews and Nivedita Balu in Bengaluru, Stephen Nellis and Jane Lee in San Francisco, Karen Freifeld in New York and Alexandra Alper in Washington, Eduardo Baptista in Beijing; Additional coverage by the Beijing editors; Editing by David Gregorio, Matthew Lewis and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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