Nvidia Corp. Faces Major Financial Loss Due to New U.S. Export Restrictions
Nvidia Corp. is set to take a massive financial blow after the U.S. government announced new restrictions on its AI chip exports to China. The company anticipates losing $5.5 billion in its first fiscal quarter because of the updated policy aimed at its H20 chips.
The action represents a significant escalation in the long-running battle between the U.S. and China over technology. It signals that the U.S. denies access to the most advanced chips in AI training and imposes strict limits on less advanced chips that could still pose a national security threat. On Monday, U.S. officials informed Nvidia that it would require a special export license to sell its H20 chips to China — “for the indefinite future.”
This is a major policy shift. The H20 chip arrived as a stopgap after the export rules put in place to stop Nvidia’s most powerful AI chips from being sent to China in 2022. Nvidia made the H20 less powerful and inefficient for AI model training (these systems need to be much more robust and capable), so it is only suitable for less sensitive work, like inference (when AI systems analyze data and infer from it). That snuffs the H20 from one of Nvidia’s most lucrative markets.
Nvidia Faces $5.5 Billion Loss and Falling Share Prices
Nvidia responded swiftly. On Tuesday, in a filing, the company said it expects a writedown of about $5.5 billion. That amount captures H20 inventory that’s yet to be sold, terminated contracts, and the cash it spent on production and materials that are now locked up in chips it’s unable to export.
The financial markets did not receive the news well. Nvidia’s shares fell about 6% in after-hours trading. Other AI chip companies, including Advanced Micro Devices (AMD), which also makes chips for AI, posted declines. Analysts at Bloomberg Intelligence say the $5.5 billion hit implies that Nvidia will lose between $14 billion to $18 billion in revenue per year, assuming the restrictions do not change. And the company’s exposure to the Chinese data-center market, which expanded in the wake of the H20’s release, would likely shrink back down to 2022 levels—just low single digits. This is a significant reversal for Nvidia, which had been counting on the H20 to let it operate in China without running afoul of U.S. policy.
U.S. Signals It Will Keep Tight Tech Limits
The United States has gradually expanded controls on AI and semiconductor exports to China in recent years. What began in 2022 as a limitation on the most powerful chips has since broadened to include more midrange processors, memory chips, chip-making equipment, and companies suspected of circumventing the rules in allied countries. The Biden administration expanded the restrictions to roughly 40 countries that were considered potential back doors to China. The administration widened that to include nearly every country in its last days. The Trump administration seems prepared to keep or even tighten those rules.
The new H20 block demonstrates that even chips designed in compliance with old policies are endangered by newer bans. And that might only be the start. It’s also worth noting that earlier reports — referenced by NPR — suggested that Trump would not ban the H20 if Nvidia built out domestic AI infrastructure. Nvidia recently announced that it plans to invest as much as $500 billion in U.S. AI data centers over four years. That number accounts for existing planned projects but demonstrates that the company is seeking to increase its presence in the United States exponentially. Yet the government proceeded with the ban.