New Chip Restrictions Can Force Nvidia to Cancel $5B in Orders: Report
Nvidia (NASDAQ: $NVDA) fell 3.3% at the opening bell on Tuesday after a report revealed that the company may be forced to cancel $5 billion worth of AI chip orders designated for China. The move comes from newly imposed export restrictions on high-end AI chips to several countries of concern, particularly China.
Alibaba, Baidu, TikTok Owner Among Companies that Ordered Nvidia’s AI Chips
According to the Wall Street Journal, recently unveiled US export controls could compel Nvidia to cancel $5 billion worth of orders scheduled for 2024 to China. Shares of Nvidia slipped more than 3% at the market open.
Per the report, the cloud computing and AI giant has completed the process of delivering orders for its coveted AI chips for 2023. However, the company was looking to deliver some of the 2024 orders in advance before the new export rules come into effect in mid-November.
This was the plan until the US government sent a letter to Nvidia, notifying the company that the export restrictions aimed at sophisticated AI chips to China and other countries took effect immediately. As a result, people familiar with the matter told WSJ that more than $5 billion worth of AI chip orders for 2024 are at risk of being canceled.
Among the Chinese giants that ordered the chips were Alibaba, Baidu, and TikTok’s parent company ByteDance. Nvidia’s spokesperson said the tech behemoth has been looking to allocate its advanced AI computing systems to customers in the US and other markets and is pursuing additional supply.
“These new export controls will not have a meaningful impact in the near term.”– the spokesman said.
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Why is the US Imposing Export Restrictions on AI Chips?
The export controls represent a part of a broader effort by the Biden administration to restrict China’s access to top-notch AI chips and other tools that could advance its military and cyberwarfare capabilities.
The most recent rules, unveiled on October 17, require any company whose AI chips surpass a performance benchmark to obtain a license from the US Commerce Department before exporting them to China and other relevant countries. That said, Nvidia is among the companies that are most affected by the limitations, given that its chips are playing a vital role in creating revolutionary AI products like ChatGPT.
This unprecedented demand sent Nvidia’s sales skyrocketing and turned it into a $1 trillion business earlier in the year.
Do you think Nvidia will be okay despite the new restrictions? Let us know in the comments below.