Nvidia faces a $5.5 billion setback after new US export restrictions on its H20 chips for China, sending its stock tumbling over 6% as it was poised to be a leader AI in semiconductor industry.
The new national technology roadmap for semiconductors requires Nvidia to obtain a special license before selling chips, as part of the Trump administration’s strategy to restrict China’s access to high-end AI.
According to Nvidia’s filing, the Trump administration indicated that the measure is designed to prevent chips from being “used in, or diverted to, a supercomputer in China,” showing the growing concerns about Beijing’s AI ambitions.
Nvidia’s semiconductor manufacturing technology strategy has followed a pattern of creating workarounds to each new round of US restrictions – first with the H800 chip and then the H20.
“OK, we’ll build the fanciest thing we can that’s allowed, and sell a bunch of them, because we’ve just been told we could sell those” – and then a bunch of people in Washington were angry, as if this was a sort of unpatriotic thing to do,” said Stanford research scholar, Graham Webster.
DeepSeek and China’s Speed
As Washington tightens controls, Beijing shows no signs of slowing down, demonstrating its willingness to join the US in its semiconductor cold war.
China’s launch of DeepSeek-R1 – AI language model developed in January – jolted US policymakers. With performance reportedly close to that of OpenAI’s ChatGPT but built using less computing power and at lower cost, DeepSeek raised serious questions about the effectiveness of America’s semiconductor chip war strategy.
“The strength of the reaction in Washington showed that many people didn’t realize what a fast follower China was,” said Helen Toner Georgetown University Center for Security and Emerging Technology, adding that “it was a good reality check.”
Despite the China US semiconductor war scrutinizing Beijing’s ambitions through restrictions and bans, DeepSeek successful training of its model on Nvidia’s H800 and H20 chips – acquired legally before the Biden administration sanctions took effect in full force – really exposed the US’ gaps in semiconductor exports. Even though the US Department of Commerce barred shipments of advanced AI chips to China in October 2023 – pre-ban stockpiles allowed Chinese companies to continue high-performance training.
According to SemiAnalysis, Chinese companies amassed over 100,000 H800 GPUs before the US restrictions went into full effect, facilitating development cycles like DeepSeek’s gen-AI models to proceed unimpeded for around 12-8 months post-sanctions.
“This was predictable industrial policy blowback,” said Director of the Wadhwani AI Center at the Center for Strategic and International Studies (CSIS), Gregory Allen, adding that “restrictions without retroactive enforcement created a $5 billion gray market for pre-ban inventory.”
That very loophole in American policies, in reality, is the creator of the vulnerability of the export control policy for the US, that triggered the power variance in the semiconductor cold war.
Is It Too Late to Stop for the US to China’s Military AI Moves?
China’s fixation on the AI in semiconductor industry is not just civilian technology it’s more and more tied to military goals. From the manufacture of chips to language models, the country is making efforts to cut back on American tech and end the AI gap in sectors that are important to national defense.
Ironically, it was US restrictions that may have encouraged Chinese firms to more semiconductors and modern industrial policy innovation. DeepSeek’s success, began without the advantage of the newest chips, is a sign of a shift toward efficiency and strength traits precious in AI applications for the military. Even DeepSeek’s AI models are being integrated into military applications, including unmanned vehicles.
Last week’s milestone from China shows the AI in semiconductor industry race is already too far along to change. China’s AI continues to advance inch by inch chip by chip, one innovation at a time.
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