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Nvidia Takes $5.5 Billion Hit as U.S. Tightens Grip on AI Chip Sales to China

Nvidia is facing a $5.5 billion financial blow after the U.S. government tightened export restrictions on its H20 artificial intelligence chips — the company’s most advanced offering for the Chinese market. The move is part of a broader strategy by Washington to curtail China’s access to cutting-edge AI technology. Nvidia revealed on Tuesday that the new export curbs would trigger massive charges related to inventory write-downs, purchase commitments, and associated reserves. The company’s stock slid nearly 6% in after-hours trading following the announcement.

Targeted Technology

The U.S. Commerce Department, which oversees export controls, confirmed it has introduced new licensing requirements for the export of Nvidia’s H20 chips, along with AMD’s MI308 and similar high-performance chips. A spokesperson said the decision was in line with the Biden administration’s directive to safeguard national and economic security.

While not as powerful as Nvidia’s flagship chips sold outside China, the H20 was designed to toe the line of previous export limits — offering high efficiency in inference tasks, a fast-growing segment of the AI market where trained models respond to user queries. But U.S. officials believe the H20’s high memory bandwidth and fast interconnect capabilities make it suitable for supercomputing applications, an area where sales to China have been restricted since 2022. The fear is that Chinese tech giants could use such chips to circumvent existing bans by building sophisticated AI systems that rival American capabilities.

Chinese Demand Under Scrutiny

Chinese tech companies including Tencent, Alibaba, and ByteDance had placed large orders for H20 chips in anticipation of growing demand for cost-effective AI infrastructure. Reuters had earlier reported that DeepSeek, a startup behind the V3 large language model, was scaling up its operations using the H20 chip.

The Institute for Progress, a Washington-based think tank, claimed this week that some Chinese firms may already be in breach of existing U.S. controls. Tencent, for instance, is believed to be using H20 chips in facilities training large AI models. The think tank also alleged that DeepSeek’s V3 training setup may violate restrictions meant to prevent Chinese firms from building powerful supercomputers.

No Clear Path on Licensing

According to Nvidia, the U.S. government notified the company on April 9 that the H20 would now fall under the licensing regime, and confirmed on April 14 that the restriction would remain indefinitely. It remains unclear whether any export licenses will be granted, and Nvidia declined to comment further beyond its official filing. The H20 chip had become Nvidia’s strategic solution for maintaining a foothold in China, a major AI market. Its restriction represents a significant commercial setback — not only in lost sales, but in strained supply chain commitments.

Local Pivot Amid Global Tensions

Ironically, the announcement comes just a day after Nvidia revealed plans to invest up to $500 billion in building AI servers within the United States, in partnership with manufacturers such as TSMC. The move aligns with growing calls in Washington for domestic chip manufacturing and reduced dependency on foreign supply chains — particularly from adversarial markets.

As geopolitical competition in AI escalates, Nvidia finds itself caught between commercial opportunity and national security policy. The company’s dominance in AI chips remains largely unchallenged, but its ability to navigate tightening controls while maintaining global market share will be key to its long-term trajectory.

With inputs from agencies

Image Source: Multiple agencies