The Trump administration on Monday informed U.S. chipmaker Nvidia that exports of its powerful H20 chips to China, and several other nations, will have to meet new licensing requirements.
Nvidia said meeting the restrictions could cost the company up to $5.5 billion.
Nvidia was informed the new licensing requirement, which will remain in place indefinitely, “addresses the risk that the covered products may be used in, or diverted to, a supercomputer in China.”
The H20 chip is not the most powerful product in Nvidia’s inventory – but, until now, it has been the most powerful chip Nvidia could legally sell to China.
Nvidia CEO Jensen Huang delivers a keynote address at the Consumer Electronics Show (CES) in Las Vegas, Nevada on January 6, 2025. (Patrick T. Fallon/AFP/Getty Images)
The Biden administration restricted the sale of more advanced chips to China in 2022. Nvidia worked around the restriction by reducing the capabilities of its popular H100 chip until it fell below the export limit and created the H20, a product sold only to China.
China used the H20 to create DeepSeek, a new artificial intelligence (AI) that rattled world markets when it was introduced late last year because it offered high-level performance at a fraction of the price. According to its creators, one reason DeepSeek was developed so cheaply was that its physical architecture employed those inexpensive Nvidia chips.
The sensational debut of DeepSeek prompted Chinese tech companies to order more than $16 billion worth of H20 chips. Nvidia accordingly stepped-up production and now fears it will have a backlog of inventory it cannot sell, since there is no demand for the H20 outside of China. The unique nature of the H20 could alleviate that problem somewhat, since some of the frozen export inventory could be H100 chips that have not yet been “throttled” down to the lower H20 specifications.
A bigger long-term problem is that losing access to the H20 could prompt China to develop a comparable chip domestically, probably through electronics titan Huawei, potentially causing Nvidia to lose its lucrative Chinese market for good. Nvidia posted $17 billion in sales to China last year.
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“Banning the H20 makes little sense to us. H20 performance is low, well below already-available Chinese alternatives; a ban essentially simply hands the Chinese AI market over to Huawei,” analyst Stacy Rasgon told investors Wednesday.
The left-wing New York Times (NYT) on Wednesday noted the politics of the Nvidia situation are complicated, as leading Democrat Sen. Elizabeth Warren of Massachusetts is strongly in favor of restricting H20 sales to China.
Warren wrote a letter to Commerce Secretary Howard Lutnick on Monday urging restrictions on H20 sales without “further delay” because she felt even the throttled-down chip sold to China was powerful enough to jeopardize U.S. national security, and because U.S. companies are having difficulty sourcing all of the artificial intelligence chips they need.
Nvidia’s position on the matter also seems delicate, as CEO Jensen Huang invested considerable effort in blocking export restrictions on the company’s chips. Just one day before the new restrictions were announced, the White House applauded Nvidia for committing $500 billion to manufacture AI equipment in the United States.
Nvidia shares were down seven percent on Wednesday after news of the export restrictions broke. The Nvidia H20 was not the only electronics export to China that was restricted on Monday; another company, Advanced Micro Devices, also slipped seven percent on Wednesday due to export restrictions, while chipmakers like Qualcomm lost two to three percent of their value.
