The United States and China have a relationship that could be summed up in a single word as, “complicated.” Or “adversarial.” Or “contentious.” And if you want to use more than one word, “kind of like that video of two dogs growling at each other through a gate.” While megacorps just want to make as much money as possible, they have to keep this relationship in mind. Nvidia is in hot water with the US Commerce Department over recent chips designed specifically for the Chinese market.
For context, Nvidia is making unbelievably, ridiculously, stupidly huge amounts of money at the moment, providing the hardware backbone for the AI software boom. We’re talking almost $15 billion in revenue last quarter, a 400 percent increase over last year. And while Nvidia and other chipmakers are popping champagne, political powers are nervous, trying to make sure that they keep an advantage over their rivals. That’s why the United States has begun restricting the sale of certain high-powered processors to China, an embargo that was recently expanded to close some loopholes. Nvidia’s AI-focused graphics chips, including the popular H100 and H800 as well as high-end consumer graphics cards like the RTX 4090, have been explicitly banned for export to China for being too powerful for potential AI applications.
US Commerce Secretary Gina Raimondo has been particularly bullish on these restrictions. “The updates are specifically designed to control access to computing power, which will significantly slow the PRC’s development of next-generation frontier model, and could be leveraged in ways that threaten the U.S. and our allies,” she said back in October.
While Nvidia ostensibly complies with these restrictions as an American corporation, it wouldn’t be, well, an American corporation if it didn’t search for a way around them. Hence the introduction of new data center chips that aren’t on the very specific ban list, and skirt under its 4800 TOPS (tera operations per second) limit. These chips, including the HGX H20, L20, and L2, are legal to sell to Chinese businesses, at least at the time of writing. A sub-4800 TOPS variation on the RTX 4090, named the 4090D or 4090 Dragon, is also rumored to be headed for the Chinese market.
Raimondo isn’t taking the announcement of these new chips lying down. “We cannot let China get these chips. Period,” she said, speaking at the Reagan National Defense Forum this weekend. According to Fortune (spotted by VideoCardz.com), she specifically called out “CEOs of chip companies…who were a little cranky with me when I did that because you’re losing revenue. Such is life. Protecting our national security matters more than short-term revenue.”
The Secretary had pointed words for Nvidia’s strategy of designing new variations of chips to slide under the TOPS power limit. “If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day.”
The Commerce Department’s policy seems pretty straightforward, and an unambiguous threat to Nvidia’s profits. (The company’s stock price is down 3.5% this morning, by the by.) While the Chinese chip market isn’t the only one on the planet, it’s probably the biggest outside of US-based tech giants, possibly bigger by some metrics. More aggressive attempts to close it off as a matter of policy could threaten Nvidia’s incredible rise. Even redesigning chips based on existing hardware isn’t free, and a sword of Damocles constantly hanging over new B2B product lines is enough to make even Fortune 500 CEOs lose sleep.
All that being said, Nvidia probably just needs to wait for another opportunity for massive profits. With the US Congress split along razor-thin party lines, and the 2024 presidential election anything but certain, sweeping changes in policy could be only a year away. Note that the Commerce Department’s restrictions are federal policies, not laws, and can be reinforced or removed at basically any time to match the whims of whoever is holding the reins of political power.