U.S. Export Controls on AI Chips Deal $5.5 Billion Blow to Nvidia’s China Business

The United States government has introduced stricter export controls on the Nvidia AI chip known as the H20, effectively blocking its shipment to China. These new restrictions require Nvidia to obtain a special export license before selling the H20 chip, citing concerns that it could be used in Chinese supercomputing projects with potential military applications. Originally engineered to comply with earlier U.S. regulations, the Nvidia AI chip H20 was tailored to meet China’s demand while staying within legal boundaries. However, the updated policy has now rendered those efforts insufficient. As a result, Nvidia anticipates a significant financial impact, projecting a $5.5 billion charge in its fiscal first quarter of 2026 due to the halted sales, inventory write-downs, and related obligations.

Nvidia disclosed in a regulatory filing that it was informed by the U.S. government on April 9 about the indefinite licensing requirement for the H20 chip. This measure aims to prevent the potential use of these chips in Chinese supercomputing applications, which are viewed as a national security risk. The H20, a less powerful variant of Nvidia’s advanced AI chips, was tailored for the Chinese market to adhere to previous export controls. ​

The financial impact of this restriction is significant. Nvidia anticipates a $5.5 billion charge in its upcoming quarterly results, encompassing inventory write-downs, purchase commitments, and reserves related to the H20 chips. This development has led to a sharp decline in Nvidia’s stock, with shares falling 6.5% following the announcement. ​

The repercussions extend beyond Nvidia. Advanced Micro Devices (AMD) reported that similar export controls on its MI308 chips could result in charges up to $800 million if export licenses are not obtained. AMD’s shares also experienced a decline of 6% in response to the news. ​

These restrictions are part of a broader U.S. strategy to limit China’s access to advanced semiconductor technology, particularly in areas with potential military applications. The U.S. Commerce Department confirmed the new licensing requirements for Nvidia’s H20 and AMD’s MI308 chips, emphasizing the need to safeguard national and economic security. ​

China has been a significant market for Nvidia, accounting for approximately 20% of its revenue. However, this figure has dropped to around 10% and is expected to approach zero due to the new export controls. The H20 chip had been a critical product for Nvidia in China, with major technology companies like Tencent, Alibaba, and ByteDance among its customers. ​

In response to the tightening export restrictions, Nvidia has announced plans to shift a portion of its chip production from Taiwan to the United States. The company aims to manufacture its AI supercomputers, including the Blackwell chips, domestically, aligning with the U.S. government’s push to bolster domestic semiconductor manufacturing. Nvidia has commissioned over one million square feet of manufacturing space in Arizona and Texas for this purpose.

The export controls have also affected other U.S. chipmakers. Micron Technology and Broadcom are expected to face challenges, particularly due to their supply relationships with Chinese firms such as ByteDance. Analysts note that Micron is already largely cut off from China following a partial ban by Beijing in June 2023.

The broader market has reacted negatively to these developments. Wall Street experienced notable declines, with the Nasdaq and S&P 500 indices falling, driven by the downturn in technology stocks. Investors are concerned about the escalating trade tensions between the U.S. and China and their potential impact on the global technology supply chain. ​

The U.S. government’s actions reflect an ongoing effort to curb China’s advancements in artificial intelligence and supercomputing capabilities. By restricting access to high-performance chips, the U.S. aims to impede China’s ability to develop technologies that could enhance its military and surveillance capacities.

As the semiconductor industry navigates these geopolitical challenges, companies like Nvidia are compelled to reassess their global strategies. The shift towards domestic manufacturing and the reevaluation of international partnerships underscore the complex interplay between technology, commerce, and national security in the current global landscape.