U.S. orders Nvidia to stop sales of top AI chips to China

Chip designer Nvidia Corp (NVDA.O) said on Wednesday that US officials had told it to stop exporting two major computer chips for AI work to China, a move that could cripple companies' ability Chinese companies to do advanced work like image recognition and hamper business that Nvidia says is expected to generate $400 million in sales this quarter.

Nvidia shares fell 4% after hours. The company said the ban, which affects its A100 and H100 chips designed to speed up machine learning tasks, could interfere with the completion of development of the H100, the flagship chip announced by Nvidia this year.

AMD shares fell 2% in after-hours trading. It makes similar AI chips.

Nvidia said U.S. officials told it the new rule "would address the risk of covered products being used in or diverted to a 'military end-use' or 'military end-user' in China."

The announcement signals a significant escalation in the US crackdown on China's tech capabilities as tensions mount over the fate of Taiwan, where chips for Nvidia and almost every other major chip company are made.

Without U.S. chips from companies like Nvidia and its competitor Advanced Micro Devices (AMD.O), Chinese organizations won't be able to cost-effectively achieve the kind of advanced computing used for image recognition and speech, among other chores.

Image recognition and natural language processing are common in consumer apps such as smartphones, which can respond to queries and tag photos. They also have military uses, such as searching satellite images for weapons or bases and filtering digital communications for intelligence gathering purposes.

AMD did not immediately respond to a request for comment.

Nvidia said it set aside $400 million in sales of the affected chips this quarter in China, which could be lost if Chinese companies decide not to purchase alternative Nvidia products. He said he planned to seek exemptions from the rule but had "no guarantee" that US authorities would grant them.

Stacy Rasgon, a financial analyst at Bernstein, said the disclosure indicated that around 10% of Nvidia's data center sales, which investors have watched closely in recent years, came from China. The impact on sales was probably "manageable" for Nvidia.

"It's not a change of (investment) thesis, but it doesn't look good," Rasgon said. "What happens on both sides now is the question," he said of possible future escalations.