The Americans are going for even tougher curbs on AI chip exports to China possibly starting as early as July, the Wall Street Journal says, in news that whacked Chinese tech stocks and US chipmakers alike.

The Wall Street Journal says the White House plans to make life for leading US processors Nvidia (NVDA, –.8%) and Advanced Micro Devices (AMD, –0.25%) to flog their best work to struggling Chinese companies working on generative artificial intelligence applications.

The latest squeeze is part of some pretty hardcore export control restrictions which began last year, when the US decided to put a real dent in China’s access to quality US tech, beginning with the critical processing segment.

The Americans are hardening their stand on anything resembling AI chip exports – including Nvidia’s A800 chips (more of them below) – in a move which would make it certainly stifle Nvidia, Advanced Micro Devices, et al and their current access to lucrative Chinese markets without first schnaffling a licence, somehow.

The mention of further export tightening has hit China’s tech majors, and is likely to weigh in the background, whatever stimulation or easing of regulations The Party has in mind in the near-term. In late US business Wednesdy night, Alibaba was down 2.7%, Baidu was down 1.5% and Tencent was 2% worse off.
 

Squeeze me

How’s this though – since the pincer effect of a global nude run began on trying to get hands on large language models such as GPT-4 and screw-tightening from the West – the demand for computational power (if not computers), has led to Chinese tech firms simply stockpiling whatever NVDA AI chips are lying about the place.

LatePost is a fairly plugged in business news outlet, founded by Caijin, you can access bits of it in English via pandaily.com . Anyway, LatePost’s Meng Yangkai reports that ByteDance placed orders for over US$1 billion worth of GPUs from Nvidia year-to-date.

Reuters’ Josh Ye reckons NVDA’s banned A100 – if it’s real/or not –  can go for as much US$20,000 on China’s emerging shadow chop market. At double the usual price, it’s a steal. Literally.

Last year the House of Biden banned US firms from selling high-end computing chips, in a bid to “restrict the (China’s) ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.”

Shares of Nvidia and AMD fell up to 2% Wednesday night after the news broke, along with China’s AI stocks.

Nvidia has been the focus of the latest chip restriction chatter.

It claims about US$1.6 billion of its revenue from hungry, chip-loving Chinese companies (state owned and state controlled), including Honkers, forecast for Q124 is around 22% of total revenue, according to the company.

On Wednesday in the US, a bunch of analysts suggested China could be between 10% and 15% of NVDA data centre’s revenue for FY23. In a note, Bank of America (BoA), thought the range was lower – circa 7% and 10%.
 

BoA: ‘Hyperscale’ customers will insulate NVDA

Nvidia’s still in the driving seat, you’d reckon. BoA does. They say “hyperscale customers will be eager to ‘soak up’ anything Nvidia leaves on the factory floor”.

“China will probably represent less than 10% of what it sees as a more than US$100 billion total addressable market for AI-related accelerator hardware.”

Citi too, which had earlier suggested, restrictions on Nvidia in China could hurt, having estimated sales to China in the 20% to 25% range.

However, this week Citi changed their tune, saying they believe “AI demand will exceed supply” this year and that Nvidia, with the strongest seat at the table, can move its chips around.

The threat of more American-made chip curbs aginst China’s tech multiverse weighed heavily on Mainland and Hong Kong markets on Wednesday, while in Japan that news and further upbeat data out of the US lifted the Nikkei back into its recent defiant mood.

Japan’s bourse surged after four sessions of losses, as technology sector stocks rallied, tracking overnight gains in US peers, boosted by Washington’s threat to their Chinese rivals and a bullish forecast for the AI sector.

On Thursday the Japanese semiconductor maker Electron rose 3.4%, amid a bevy of Japanese tech largesse.

Since then, shares of Asian chipmakers outside the mainland rallied on Thursday after Micron Technology (MCU) delivered an ambitious outlook overnight, saying the sector looks strong and the supply glut is almost washed through.

Micron reported Q3 earnings well beyond Wall St estimates. Micron’s shares rose 3% in extended trading hours, with the optimism driven by – you might imagine – strengthening demand for its AI-related memory chips.

“We believe that the memory industry has passed its trough in revenue, and we expect margins to improve as industry supply-demand balance is gradually restored,” Micron CEO Sanjay Mehrotra said in a release.
 

Just not good friends at all

Meanwhile, the US Secretary of State Antony Blinken said on Wednesday that any misperception these kind of actions show that US intends to contain China “economically and globally” was a “lengthy part of the discussions” with top Chinese officials when he popped by a few weeks ago.

Holding back the world’s second-largest economy was counter to US interests, Blinken said at an event in New York by the Council on Foreign Relations.

Blinken obfuscated, “if you actually look at what’s happening, and what’s happened, the facts belie that assertion”.

Washington’s floating of another round of restrictions on China’s access to US semiconductor tech,  belie’s Blinken’s ‘belie’ remarks, because in the end –  containment or protectionism – the moves hurt. They hurt economically, politically and they ‘hurt the feelings of the Chinese people’, a standard response from a quirkily dangerous political regime which never hesitates on doing weird stuff ‘in the name of the Chinese people.’

The South China Morning Post, ignoring the reports on black market activity reports that China’s big tech firms were scrambling to find replacement parts for Nvidia’s processors – quoting a report from the Economic Daily that China’s advanced AI sector was unable to hit top gear without US-made  GPUs and other key tech.

Like for example, certain light-years-ahead chips technology, which the US banned in October

Or further back in August 2022 when Nvidia, lost the opportunity of China’s passion A100 and H100 chips, used to train large language models.

At the time,  NVDA warned that it could lose up to US$400 million of quarterly sales from the new gently-termed ‘licensing requirements’ on the sale of some of its most advanced chips to customers in China – the White House responded (at the time) it’s super nervous the chips would just end up inside China’s military.

NVDA – showing why this is a cunning company worthy of its trillion US dollar valuation – came up with an excellent loophole and simple started producing slightly less-powerful chips (but with bigger names) for its China market—the A800 and H800.

Now they’ll have to go back to the brains trust and think of something – according to the WSJ, the new restrictions specifically target those get-into-China free chips.