October 16, 2023

Nvidia and the Escalating Chip War With China

The US Commerce Department just announced new restrictions aimed at limiting the export of high-tech chips, particularly those that power cutting-edge AI sold by companies like Nvidia.

This blog discusses the news and its implications for the generative AI market.

Chips Amidst the AI Arms Race

The US has long sought to govern its semiconductor trade with China more tightly. In the past, regulations have limited the ability of Chinese companies to buy both chips and the capital equipment required to assemble new facilities for fabricating silicon (fabs). This new wave of export regulation, however, emerges against the backdrop of what is shaping up to be a global arms race for AI capabilities.

Generative AI, powered by state-of-the-art large language models (LLMs) has been widely recognized as a major potential driver of GDP growth. As the private sector scrambles to deploy enterprise-ready offerings, Washington is keeping an eye on this emerging technology, both in terms of internal regulation and external export controls.

As the US seeks to establish its regime of regulatory governance for private sector AI development, it simultaneously seeks to limit the growth of Chinese capabilities and preserve its leading edge in the global AI arms race.

Nvidia and the Global AI Market

While California-based OpenAI still leads the market with its cutting-edge GPT models, Chinese technology is catching up. The most cutting-edge language models trained in China, built by companies like Baidu, are trained on American-made Nvidia GPUs.

While the new export controls do not explicitly prohibit the sale of Nvidia’s new, highly-powerful H800 line of chips, the standard guidelines for selling chips have been widely viewed as a prohibition to target the sale of H800s to China.

As a result, Nvidia stock plummeted on the 17^th, and some have raised caution that the new legislation may be overly broad or punishing for chip manufacturers.

This comes at a time when there is high-demand for Nvidia chips domestically on the heels of a global semiconductor shortage, so there is a possibility that generative AI startups and enterprise scaling will fill the void left by the Chinese market.

Bottom Line

With its choice to limit the sale of high-powered AI chips to China even further, the US government commits to its continued posture of export control in the global AI arms race.

We cannot say for sure what the effects will be for the generative AI market, which will see some lost chip sales, but also the possibility for a unique set of opportunities for American businesses.