Nvidia Faces Significant Cost Increases Due to New US Export Regulations for AI Chips

Nvidia is bracing for a substantial financial impact as new US export regulations for artificial intelligence (AI) chips come into effect, potentially leading to losses exceeding initial estimates of $5.5 billion. The company, which has strong ties to the Chinese market, is likely to experience a more significant decline in revenue due to these restrictions.

The latest export controls, implemented this week by the US government, have caught Nvidia and its Chinese partners off guard. The company had previously projected losses of $5.5 billion, primarily attributed to the inability to fulfill orders for its H20 chips, specifically designed for export to China. However, analysts now believe that Nvidia's revenue losses could exceed $10 billion, given that the company generated between $12 billion and $15 billion in China last year.

Despite earlier optimism following a meeting with former President Donald Trump, Nvidia's leadership seems to have miscalculated the impact of the new regulations. Although Trump expressed enthusiasm for Nvidia's plans to invest $500 billion in the US, the company had anticipated that its H20 chip would be exempt from the new export controls, due to its compliance with previous regulations.

In light of the new rules, Nvidia informed its major Chinese clients, including Alibaba, ByteDance, and Tencent, that their orders for H20 chips would not be affected. However, the US government has since mandated that licenses must be obtained for the export of these AI chips, leaving many questions unanswered regarding the application process and criteria for approval.

Typically, Nvidia requires more than six months to fulfill orders for its AI chips, meaning that many orders placed this year will likely fall under the new export regulations. This is particularly concerning as demand for Nvidia's H20 chips has surged, driven by the emergence of China's new AI model, DeepSeek.

Intel, another major player in the AI chip market, is also impacted by the stricter export controls. The company has its own AI accelerator, Gaudi 3, designed for data centers. While Nvidia has yet to clarify its stance on the new regulations, Intel has proactively informed its Chinese customers of the requirements. The US government has specified that chips exceeding certain performance thresholds, including memory bandwidth and I/O bandwidth, will require licensing for export, a criterion that both Nvidia's H20 and Intel's Gaudi chips exceed.

As companies navigate these complex export regulations, the ramifications for the AI chip market are significant. With restrictions tightening, the future of AI chip sales in China looks uncertain, potentially reshaping the competitive landscape for major semiconductor manufacturers.