Nvidia’s $5 Billion of China Orders in Limbo After Latest U.S. Curbs

Tech company had been pushing to make chip shipments for next year before new restrictions came into effect

New U.S. export controls may compel artificial-intelligence giant Nvidia to cancel billions of dollars in next-year orders for its advanced chips to China, a move that could deprive Chinese tech companies of crucial AI resources.

The Santa Clara, Calif.-based company had already finished delivering orders of its advanced AI chips to China for this year, according to people familiar with the matter, and was pushing to deliver some 2024 orders in advance before the new rules were scheduled to come into effect in mid-November.

Then the U.S. government told Nvidia in a letter last week that the new export restrictions on the sale of high-end chips to countries including China were instead effective immediately.

China’s biggest AI and cloud-computing companies including Alibaba Group, TikTok owner ByteDance and Baidu had made large orders for delivery next year, the people said. Orders from major Chinese companies for 2024 exceeded $5 billion, one of the people said.

A spokesman for Nvidia said the company has been working to allocate its advanced AI computing systems, which use graphics chips affected by the rules, to customers in the U.S. and elsewhere and is pursuing additional supply. “These new export controls will not have a meaningful impact in the near term,” the spokesman said.

Earlier this year, Colette Kress, Nvidia’s chief financial officer, said that in the longer term prohibiting sales of AI chips to China would result in a permanent loss of opportunities for the U.S. chip industry.

The restrictions on AI chips are part of a wider effort by the Biden administration to curtail China’s access to advanced chips, AI tools and other technology that the U.S. believes China could use to advance its military and cyberwarfare capabilities.

The latest rule, announced on Oct. 17, requires any company whose AI chips exceed a performance benchmark to seek a license from the U.S. Commerce Department before exporting them to China and other countries of concern.

Nvidia’s China stakes

Nvidia bore the brunt of the restriction because its AI chips, which are essential in creating popular AI tools such as OpenAI’s ChatGPT, are the most advanced and widely deployed in the world. Surging interest in AI has sent Nvidia’s sales and stock price skyward, crossing a $1 trillion valuation earlier this year.

In its most recent four quarters, Nvidia has reported around $22 billion of total revenue in the data-center division that houses its AI chips.

After the U.S. government imposed a less-stringent set of chip restrictions late last year, Chinese companies raced to order Nvidia’s A800 and H800, AI chips modified for the Chinese market to comply with the regulations. Under the tougher rules announced on Oct. 17, however, Nvidia must cancel the orders unless it gets export licenses from the U.S. Commerce Department.

Nvidia stopped taking new orders from China for its advanced AI chips in the wake of the new restrictions, according to people familiar with the matter. The company planned to rush some deliveries of previously placed orders during the rule’s 30-day grace period, the people said.

The Commerce Department’s decision to make the new curbs effective immediately meant deliveries were no longer possible.

Nvidia didn’t give priority to production of A800 and H800 chips this year, according to people familiar with the matter. Instead it planned to increase sales of the China-targeted chips in 2024, they said.

Nvidia said its L40S, an AI chip it made available in August, is also affected by the U.S. export curb. Some Chinese companies had talked with Nvidia about increasing purchases of L40S GPUs weeks before the Oct. 17 new rules, as the industry speculated that A800 and H800 were likely to be banned by the U.S. government, the people said. The L40S is designed to be better at operating AI systems than building them, making it a less suitable alternative for those other two chips.

Chip ban may slow China’s AI advances

The latest chip restrictions are likely to slow China’s pace in developing advanced AI capabilities and force Chinese developers to use homegrown alternatives, industry executives and analysts say.

The rules now cover most of the high-performance AI and data-center chips from Nvidia, Intel and Advanced Micro Devices. Chinese companies will have to rely on inventory, use a larger number of less advanced chips or find other workarounds.

Analysts at Bernstein Research estimated in a report last week that using Nvidia’s V100, a less-capable AI chip launched in 2017, would lead to 30% higher costs to train AI systems as it requires more chips and thus consumes more energy.

Chinese companies have started sourcing homegrown chips, including Huawei Technologies’ Ascend 910 and Cambricon Technologies’ Siyuan 590.

The founder of Chinese speech-recognition company iFlytek said in August that Ascend had achieved capabilities and performance comparable to Nvidia’s A100. However, U.S. rules have barred leading foundries such as Taiwan Semiconductor Manufacturing, or TSMC, from manufacturing many of these chips.

Other Chinese companies such as Baidu and Alibaba have also developed their own AI chips and are counting on better algorithms and software to achieve higher performance with less advanced chips.