The top AI chip designer in the industry has become entangled in recent conflicts as the US moves to restrict China’s access to American technology for military and AI advancements. Nvidia finds itself in the midst of a growing trade war between the two largest global economies.
Nvidia announced on Tuesday that it anticipates a $5.5 billion financial setback following new export restrictions imposed by Washington on its H20 artificial intelligence chips destined for China. This development is part of the broader trade tensions affecting global markets, with concerns rising about the impact on economic growth.
The H20 chip, tailored to comply with US export regulations to China, was introduced just last year as a means for Nvidia to continue sales to the country. However, with the recent change in rules, the company faces significant financial losses due to the inconsistency in trade policies.
The unveiling of the H20 chip was instrumental in aiding DeepSeek’s breakthrough in developing its ChatGPT-like reasoning AI model, R1, at a lower cost compared to American alternatives. This achievement shook the tech sector and ignited an AI revolution in China.
Nvidia, which derived 13% of its sales from China last year, has been informed by the US government that a special license is now required to export the H20 chips to China. The chipmaker expects to incur charges worth approximately $5.5 billion in its upcoming earnings report, attributing it to inventory, purchase commitments, and related reserves.
While analysts view the financial impact as relatively modest, they acknowledge that the restrictions pose a strategic setback for Nvidia’s interactions with its Chinese clientele. The new export rules signal significant challenges for the company in maintaining its business relationships in China, a critical market for its AI technology.
The US Commerce Department has introduced fresh export licensing requirements for Nvidia’s H20 chips, as well as for AMD’s MI308 chips, in an effort to protect national and economic security interests. Nvidia has been informed that these license requirements will remain in effect indefinitely.
The process by which the US government would issue licenses remains unclear, as the company chose not to provide further comment. The sudden imposition of restrictions on H20 chips by the Trump administration took analysts by surprise, according to a note from Morgan Stanley. Following the global impact of DeepSeek’s R1 model earlier this year, bipartisan American lawmakers have called for stricter export controls on AI chips. This push has coincided with a surge in investment and pressure on Chinese companies to advance their AI sector, sparked by DeepSeek’s breakthrough. While Chinese tech giants, including DeepSeek, have been major users of Nvidia’s H20 graphic processing units, alternatives developed by Huawei and Cambroon have not matched the performance level, according to Brady Wang of Counterpoint Research. The performance gap between Chinese and Nvidia chips is expected to widen due to Nvidia’s ecosystem and manufacturing advantages. The impact of tariffs on global and US economic growth is predicted to be significant, with the WTO forecasting slower growth rates due to trade tensions, especially in North America. As the trade war between the US and China escalates, further restrictions are anticipated. President Joe Biden initiated controls on the sale of advanced semiconductors to China, expanding to include chipmaking equipment and memory chips, as well as introducing a global export framework to prevent advanced AI technology from reaching adversaries. These restrictions have faced criticism from US tech giants like Nvidia, who argue that they harm US competitiveness.
The speaker highlighted the importance of AI adoption worldwide in driving growth and creating opportunities for industries both domestically and internationally. He warned that restrictions could jeopardize global progress and hinder innovation and economic growth on a global scale. To stay updated with the latest CNN news and newsletters, sign up for an account at CNN.com.
