U.S. Export Controls Impact Nvidia's Chip Sales to China

In recent news, new U.S. export controls have raised significant concerns for Nvidia (NVDA:US), a major player in the field of artificial intelligence. These controls may lead to the cancellation of significant chip orders for the upcoming year destined for China, potentially affecting the supply of AI resources to Chinese tech companies.

To provide some context, Nvidia has already completed the delivery of advanced AI chips to China for the current year. They were also working to expedite the delivery of certain 2024 orders before the new rules were originally set to take effect in mid-November. However, the U.S. government informed Nvidia through a letter last week that the new export restrictions, including those related to high-end chips for countries like China, would be immediately enforced.

Prominent Chinese AI and cloud-computing companies, including Alibaba Group (BABA:US), ByteDance, and Baidu (BIDU:US) had placed substantial orders for delivery in the coming year. Orders from these major Chinese companies for 2024 alone exceeded $5 billion.

These restrictions on AI chips are part of a broader effort by the Biden administration to limit China's access to advanced chips, AI tools, and other technologies, with concerns about their potential use in military and cyberwarfare applications.

Nvidia is significantly affected by these restrictions because its AI chips, which are integral to creating popular AI applications like OpenAI's ChatGPT, are among the most advanced and widely used globally. The growing interest in AI has propelled Nvidia's sales and stock prices, pushing the company's valuation beyond $1 trillion earlier this year.

Over the past four quarters, Nvidia has reported nearly $22 billion in total revenue in the data center division responsible for housing its AI chips. Earlier this year, Colette Kress, Nvidia's chief financial officer, expressed concerns about the long-term implications of prohibiting AI chip sales to China, emphasizing the potential permanent loss of opportunities for the U.S. chip industry.

In response to the U.S. government's export ban, Chinese companies have initiated the exploration of alternatives, including sourcing domestically produced chips such as Huawei Technologies' Ascend 910 and Cambricon Technologies' Siyuan 590.

On the congressional trading front, Representative Josh Gottheimer reported selling his stakes valued up to $15,000 in the Santa Clara based tech giant on September 11, when the stock closed at $451.78 per share. Notably, the congressman serves on the House's Permanent Select Committee on Intelligence and Committee on Financial Services.