On Thursday, Nvidia announced that the US government will allow it to continue developing its H100 artificial intelligence chip in China. It’s a victory for the company, which warned on Wednesday that new export restrictions could stymie its operations in the country.
According to an SEC filing made by Nvidia on Wednesday, the US government is restricting sales of high-performance AI chips for servers, the A100 and H100, to China and Russia. Both chips’ sales are still restricted in those markets, though the H100 can still be developed in China. Nvidia expects new export restrictions to cost it $400 million in revenue in the current quarter.
During Thursday’s trading, Nvidia stock fell more than 11%.
“The United States government has authorized the exports, reexports, and in-country transfers required to continue NVIDIA Corporation’s, or the Company’s, development of H100 integrated circuits,” Nvidia stated in a filing on Thursday.
Because of concerns that Chinese companies may use certain semiconductors and equipment for military purposes, the Biden administration is working to limit US exports of these items. Nvidia and AMD graphics processors are well-suited for artificial intelligence applications such as weapon development, facial recognition, and other military applications.
Nvidia’s upcoming enterprise AI chip, the H100, was previously scheduled to ship by the end of the year. China plays a role in its development. The A100 is an older model that’s been on the market for three years. They are both graphics processors with supercomputing and artificial intelligence capabilities.
Nvidia’s data center business, which includes sales of the A100 and H100, is one of the company’s fastest growing segments, with $3.8 billion in sales in the June quarter, a 61% increase year on year.
Nvidia CEO Jensen Huang, on the other hand, warned analysts in August that Chinese cloud companies were slowing down data center construction and that China was a “very large market” for the company. Nvidia announced on Thursday that it will continue to ship AI chips from its Hong Kong facility until September 2023.
“The Chinese hyperscalers and Chinese Internet companies really, really slowed down infrastructure investment this year,” Huang said. “They’ve been rather slow in building out and really accelerate — well, really slowed down in Q2.”
Some analysts believe that by collaborating with the government, Nvidia can mitigate the impact of the new export restrictions, though it is unclear whether the Chinese government will retaliate with its own bans.
“While there are potential near and intermediate term risks from the export ban, Nvidia is working closely with the USG to navigate the situation, and we believe the USG is fully aware of Nvidia’s accelerated compute platform’s critical/strategic importance to the global tech industry,” JPMorgan analyst Harlan Sur wrote in a note on Thursday.
The Department of Commerce stated that the new export restrictions are related to national security, but it did not respond to follow-up questions about whether the policy for Nvidia was clarified or changed.
“While we are not in a position to outline specific policy changes at this time,” a Department of Commerce representative said on Wednesday, “we are taking a comprehensive approach to implement additional actions necessary related to technologies, end-uses, and end-users to protect U.S. national security and foreign policy interests.”
AMD also announced on Wednesday that it had received new license requirements from the Department of Commerce, but that it did not expect them to have a material impact on its business due to its lower China exposure. AMD stock fell more than 7% in Thursday trading.