Nvidia announced on Tuesday that the U.S. government had blocked the sale of some of its artificial intelligence chips to China without a license and would now require a license for future sales.
These restrictions mark the first major limits imposed by President Trump’s administration on semiconductor sales overseas. This raises concerns that Nvidia’s sales to China may decline in the coming months, potentially ending a business that has already shrunk due to U.S. restrictions on chip exports to China.
Nvidia has been battling to maintain sales to China despite increasing government restrictions. The Biden administration implemented rules in 2022 to restrict the export of Nvidia’s top A.I. chips to China. In response, Nvidia altered one of its leading A.I. chips, the H100, to comply with U.S. government thresholds, creating the China-specific H20 chip.
Due to the government’s new rule, Nvidia will incur a $5.5 billion charge against its revenue in the current quarter for H20 inventory, purchase commitments, and related reserves that it cannot sell or fulfill.
The write-down represents a significant strategic setback for Nvidia. Selling chips to China was deemed crucial for the company’s future, given its dominance in the semiconductor market for artificial intelligence systems. With the possibility of withdrawing from the market, Nvidia feared losing sales to Huawei, China’s top A.I. chipmaker, and facing competition globally.
Patrick Moorhead, a tech analyst with Moor Insights & Strategy, commented, “This deal eliminates Nvidia’s access to a key market, diminishing their presence in the country. Chinese companies are likely to switch to Huawei.”
Nvidia declined to provide a statement on the matter. The company’s stock price dropped over 5 percent in after-hours trading on Tuesday.
Commerce Department spokesman Benno Kass stated on Tuesday that the administration was introducing new export licensing requirements for Nvidia’s H20 chip, Advanced Micro Devices’ MI308, and their equivalents.
“The Commerce Department is committed to executing the president’s directive to protect our national and economic security,” Mr. Kass remarked.
Nvidia disclosed the regulatory change on Tuesday, following its commitment to invest $500 billion in A.I. infrastructure in the U.S., for which it received commendation from the White House. The company announced plans to manufacture servers in Houston and collaborate with chip packaging firms in Arizona.
However, these pledges were made after Nvidia was privately notified by the Trump administration last Wednesday about the new licensing requirement to sell A.I. chips to China, as stated in its regulatory filing. The company mentioned that the Trump administration subsequently informed them that the licensing requirements would remain indefinitely.
This development comes after Nvidia’s CEO, Jensen Huang, met with President Trump at a Mar-a-Lago dinner following reports that the U.S. government might ease restrictions on Nvidia’s sales to China.
Since taking office, President Trump’s administration has vowed to crack down on U.S. support for Chinese A.I. companies. DeepSeek, a Chinese startup, attracted attention in Washington with its low-cost A.I. system, challenging U.S. companies in the artificial intelligence space.
Commerce Secretary Howard Lutnick emphasized during his nomination hearing the need to stop Chinese companies from using American technology, including Nvidia’s, to compete against the U.S.
In the previous year, Nvidia reported $17 billion in sales to China. However, the company’s business in China has decreased as a portion of its overall revenue due to U.S. government restrictions. Sales to China, which accounted for around a fifth of Nvidia’s revenue in the 2023 fiscal year, dropped to 13 percent last year.
Nvidia did not specify in its filing whether the licensing requirements would impact future sales. Analysts suggest that Nvidia has limited inventory since it creates the H20 chip by reducing the performance of its H100 chips. It can continue selling unaltered H100 chips to U.S. and European companies.