US Considers AI Semiconductor Export Restrictions to China... Nvidia Warns of Losing Competitiveness in Largest Market

The Biden administration in the United States is considering a plan to completely block exports of artificial intelligence (AI) semiconductors to China, including 'low-performance versions,' causing semiconductor stocks, including Nvidia, to fall sharply on the 28th (local time). If exports to China that circumvent existing regulations also become subject to restrictions, it will inevitably affect not only Chinese companies engaged in AI development but the entire U.S. semiconductor industry. However, Nvidia drew a line by stating that there would be no immediate impact from additional regulations due to strong demand for its products.

[Image source=Reuters Yonhap News]

On that day, Nvidia's stock price on the New York Stock Exchange closed at $411.17 per share, down 1.81% from the previous session. During the day, Nvidia's stock price fell to around $405, threatening its market capitalization to drop below the $1 trillion mark. The iShares Semiconductor Exchange-Traded Fund (ETF) also fell by 0.77%. Besides Nvidia, other leading semiconductor stocks such as AMD, Intel, and Qualcomm also showed declines. This contrasts with the recent sharp rise in semiconductor stocks fueled by AI optimism.

This followed a report by The Wall Street Journal (WSJ) the previous day that the U.S. Department of Commerce could impose additional export restrictions to China as early as next month. After the Commerce Department banned exports of cutting-edge AI semiconductors to China last year, Nvidia created and sold lower-performance versions of graphics processing units (GPUs) for export to China, such as the 'A800' and 'H800.' However, if the new regulations are implemented, even these low-performance semiconductors will require prior approval and become subject to export bans.

In effect, the U.S. government is sending a strong warning to its semiconductor companies to give up on 'loophole exports' to China. Nvidia supplies more than 90% of high-value semiconductors such as GPUs used in AI development to the global market. Nvidia's major Chinese customers include Alibaba Cloud, Tencent Cloud, Baidu Smart Cloud, H3C, Inspur, and Lenovo. For these Chinese companies, with access to cutting-edge AI semiconductors already blocked, further regulation of low-performance versions is expected to make future AI development even more difficult.

Investment bank Jefferies reported that unlike image-based AI, text-based AI models can be sufficiently developed using only low-performance versions, and Chinese companies have focused on developing text-based generative AI using the A800 following the U.S. export restrictions on cutting-edge AI. The cloud service regulations reportedly under review by the U.S. Department of Commerce are also analyzed as measures to block Chinese companies from developing AI using U.S. cloud services equipped with high-performance AI semiconductors.

However, Nvidia stated that there would be no immediate impact related to the additional regulations. Nvidia CFO Colette Kress said at a financial conference that day, "We are aware of reports that the U.S. government is considering additional regulations that could restrict exports of A800 and H800 products to China," but added, "Because demand for our products is strong worldwide, we do not expect any immediate significant financial impact even if additional regulations are implemented." Nvidia's stock, which had plunged early in the session, narrowed its losses following these remarks.

Nevertheless, long-term effects from additional regulations are inevitable not only for U.S.-China relations but also for the semiconductor industry as a whole. Following China's regulations targeting Micron, semiconductors have once again become a flashpoint in U.S.-China relations. Accordingly, tensions between the U.S. and China, which seemed to have eased somewhat on the surface with recent visits such as U.S. Secretary of State Tony Blinken's trip to China, are expected to be reassessed. Dennis Wilder, a former national security official affiliated with Georgetown University, said at a recent forum, "The Chinese are really worried about decoupling." William Reinsch, senior advisor at the Washington think tank Center for Strategic and International Studies, also told WSJ, "(China) tried to retaliate with sanctions on Micron. There could be other measures."

For U.S. semiconductor companies, they must completely give up on the Chinese market, one of the largest markets in the world. CFO Kress pointed out, "We will permanently lose the opportunity to compete and lead in one of the largest markets." Considering that Nvidia has offset sales losses by exporting the A800 instead of the A100 following last year's U.S. government export restrictions, further sales losses are also expected due to additional regulations. CFO Kress confirmed that the Chinese market accounts for 20-25% of Nvidia's sales.

This content was produced with the assistance of AI translation services.