On the way out the door, the Biden administration on Monday issued its widest-ranging rules yet on artificial intelligence chip exports, sending shares of Nvidia lower. The news The Commerce Department proposed more expansive restrictions on chip exports that it argues are necessary for national security because they will make it harder for China and other U.S. adversaries to gain access to the most advanced AI computing technology. Shares of Nvidia, the dominant maker of AI chips known as graphics processing units, or GPUs, fell roughly 2.5% on Monday as investors grappled with the potential implications for the Club name’s booming business. Ex-portfolio holding Advanced Micro Devices , which is jockeying for a piece of the AI chip market, initially lost nearly 1% on the news, before reversing slightly higher. Club stock Broadcom , which co-designs AI chips for many companies including China-based ByteDance, rose modestly in Monday’s session. ByteDance is the parent company of TikTok. In a research note, analysts at Citi expressed confidence in Broadcom’s broader AI business even if its ByteDance relationship is impacted. The Biden administration’s previous attempts at curtailing China’s access to AI technology — beginning in 2022 — were largely focused on the computing capabilities of individual chips used in data centers to train and power AI models. What that meant, in practice, was that the most advanced GPUs made by Nvidia were deemed too powerful to freely be shipped to Chinese customers, which historically represented between 20% and 25% of the company’s data-center revenues. To comply with the rules, Nvidia has developed throttled-back versions of the chips for the Chinese market that do not exceed U.S. government-mandated performance thresholds and, therefore, did not require an export license to be shipped to customers. The AI export rules announced Monday take a different path to accomplish the Biden administration’s geopolitical goals. The Commerce Department laid out what it called a “multi-part framework” that creates global licensing requirements for AI chips and related technology. Instead of focusing on the individual capabilities of chips, the framework would put in place a cap on the amount of computing power that most countries can secure within a certain timeframe. Crucially, a group of 18 allies of the U.S. — including Japan, the United Kingdom, Germany, Taiwan, and South Korea — are exempt from the rules. For countries not on that exempt list, such as Singapore, there is an additional licensing exception for shipments of AI chips “well below the amount necessary to train the most advanced AI models,” according to a draft of the Commerce Department’s proposal . That is intended to ensure sales to universities can continue, for example. Big picture At this point, it remains unclear what financial impact Nvidia could face if these proposals were to be implemented. The timing here is key, too, with the Trump administration set to take office in a week. President-elect Donald Trump is a known China hawk, but these proposals touch all parts of the globe. The Trump transition team did not immediately respond to the Club’s request for comment. The Commerce Department will open a 120-day comment period on the rules this week, giving companies a chance to weigh in with concerns. Nvidia has already made its feelings known. Ned Finkle, vice president of external affairs, did not mince words. “This sweeping overreach would impose bureaucratic control over how America’s leading semiconductors, computers, systems and even software are designed and marketed globally,” Finkle wrote in a blog post published Monday. “By attempting to rig market outcomes and stifle competition — the lifeblood of innovation — the Biden Administration’s new rule threatens to squander America’s hard-won technological advantage.” The head of the Semiconductor Industry Association, a Washington-based lobbying group, also criticized the proposal. “We’re deeply disappointed that a policy shift of this magnitude and impact is being rushed out the door days before a presidential transition and without any meaningful input from industry,” SIA President and CEO John Neuffer said in a statement. “The new rule risks causing unintended and lasting damage to America’s economy and global competitiveness in semiconductors and AI by ceding strategic markets to our competitors.” “The stakes are high, and the timing is fraught,” he continued. “We stand ready to work with leaders in Washington to chart a path forward that protects national security while allowing us to do what America does best – compete and win globally.” Bottom line Jim Cramer called the Commerce Department’s more far-reaching proposal “absurd,” and part of a “last-grasp attempt” by the Biden administration to throw a wrench into the chip industry. He said he suspects that the Trump administration would consider walking it back. Jim noted that Nvidia CEO Jensen Huang has emphasized the company’s opportunity in “sovereign AI,” a concept that refers to a country having control over its computing infrastructure and data in order to develop AI solutions that incorporate their local customs and culture. In the fall, Huang traveled to a number of countries to tout various AI initiatives, including Japan , Indonesia , India and Denmark . Of those four, all but Indonesia are included in the 18 “exempt” countries. While Monday’s stock decline adds to the recent stretch of volatile trading for Nvidia, “you know I think Nvidia is terrific,” Jim said. Shares of Nvidia closed at a record high of $149.43 each on Jan. 6. Accounting for trading action Monday afternoon, Nvidia was in correction territory, defined by a drop of more than 10% from recent highs. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of the stocks.) 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Nvidia Corp. signage outside the company’s headquarters in Santa Clara, California, on Nov. 19, 2024.
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On the way out the door, the Biden administration on Monday issued its widest-ranging rules yet on artificial intelligence chip exports, sending shares of Nvidia lower.
