Key Takeaways:
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- Chinese buyers are bypassing U.S. export controls to acquire Nvidia’s advanced Blackwell AI chips through third-party intermediaries in nearby regions.
- Nvidia’s Blackwell chips, launched in December, are commanding significant premiums in China, with servers retailing for over $600,000.
- U.S. export restrictions have spurred a sophisticated gray market, highlighting challenges in enforcing technology curbs.
- The Biden administration’s measures to limit AI chip exports are set to intensify, but their effectiveness remains uncertain.
What Happened?
Chinese buyers are using intermediaries in regions like Malaysia, Vietnam, and Taiwan to acquire Nvidia’s latest Blackwell AI chips, despite U.S. export restrictions. These chips, critical for advanced AI applications, are being sold as part of complete servers, with some vendors promising delivery within six weeks. Nvidia reported $11 billion in sales for these chips in the last quarter, accounting for 30% of its revenue. While the U.S. has imposed strict export controls since 2022, a gray market has emerged, enabling Chinese buyers to access restricted technology through sophisticated networks of brokers and resellers.
Why It Matters?
The circumvention of U.S. export controls underscores the difficulty of enforcing technology restrictions in a globalized market. Nvidia’s chips are vital for AI development, and their acquisition by Chinese entities could accelerate China’s progress in AI, a key area of U.S.-China competition. The emergence of a gray market highlights the limitations of current policies and the adaptability of global supply chains. For investors, Nvidia’s strong demand in China, despite restrictions, signals robust revenue potential but also regulatory risks. Meanwhile, the U.S. faces a strategic challenge in balancing national security concerns with the global demand for cutting-edge technology.
What’s Next?
The Biden administration’s upcoming measures, including country caps on AI chip purchases, aim to tighten export controls further. However, the Trump administration’s stance on maintaining these policies remains unclear. As enforcement intensifies, underground trading may become riskier, potentially driving up costs and limiting supply. Investors should monitor Nvidia’s compliance efforts and the impact of new restrictions on its revenue. Additionally, the growing demand for alternative chips like Nvidia’s H20, which are not yet restricted, could shape the market dynamics in the near term. The broader U.S.-China tech rivalry will likely continue to influence policy and market trends.
