U.S.: Nvidia can sell AI chips to China, just not the best ones

Nvidia can sell artificial intelligence chips to China, but just not "the most sophisticated ones", U.S. Commerce Secretary Gina Raimondo said on Monday.

Raimondo told Reuters that the California chipmaker "can, will and should sell AI chips to China because most AI chips will be for commercial applications".

"What we cannot allow them to ship is the most sophisticated, highest-processing power AI chips, which would enable China to train their frontier models," she said during a visit to New Hampshire.

Nvidia, which declined to comment, has more than a 90 percent share of China's $7 billion AI semiconductor market, but analysts have said stricter U.S. curbs on chip exports announced in October are likely to create opportunities for Chinese rivals to make inroads.

Chip designers in China, including Tencent Holdings, are pitching their AI chips as alternatives to Nvidia's, hoping the U.S. export restrictions will lead clients to switch, said four people familiar with the matter, according to Reuters.

U.S. technology controls have emboldened smaller names such as Hygon Information Technology and startup Iluvatar CoreX to take the fight to Nvidia.

Huawei Technologies Ltd is widely seen as making the most progress, with its Ascend 910B being compared to Nvidia's A100 in terms of computing power.

Tencent has been promoting services that use the AI inference chip Zixiao it developed with startup Enflame, touting performance comparable to some Nvidia chips, two of the people said.

Nvidia is working on a new lineup of AI chips customized for China, called the H20 and L20, The Wall Street Journal reported in November. The company developed the new chips as a way to continue sales to China after the U.S. tightened export controls.

The new processors follow the stricter Commerce Department guidelines, Huang told reporters in Singapore last week.

The H20, the most powerful of the chips, would fall short of the performance levels requiring an export license, according to an analysis by Bernstein Research, the Journal reported.

Nvidia had told customers in China it was delaying the launch of a new China-focused AI chip until the first quarter of next year, Reuters reported last month.

The company warned during its November earnings call that it expects a steep drop in fourth-quarter sales in China due to the new U.S. rules.

Raimondo said the U.S. is looking into the specifics of three new AI accelerators that Nvidia is developing for China, after vowing earlier this month to restrict any new chips that give China AI capabilities, Bloomberg News reported on Monday.

"We look at every spec of every new chip, obviously to make sure it doesn't violate the export controls," she told Bloomberg News during a visit to Nashua, New Hampshire.

The Center for Strategic and International Studies said in October that U.S. export controls have affected U.S. industry in two major ways: loss of Chinese market demand for leading-edge chips and their associated technologies, as well as retaliatory controls and sanctions by China.

"Additionally, the Chinese government has been working to convince domestic technology firms to source their inputs domestically rather than from U.S. suppliers.

This threat of designing-out U.S. critical technological inputs threatens U.S. industry en masse," said the analysis.