Nvidia (NVDA) stock fell as much as 5% early Monday as reports surfaced of the tech giant’s AI chips reaching China despite export controls.
The Wall Street Journal reported late Sunday that Nvidia’s AI latest Blackwell chips are reaching China through third party resellers using entities registered in nearby regions, in violation of export controls.
That report was followed by news that Singapore is probing Nvidia’s customers Dell (DELL) and Super Micro Computer (SMCI) — companies that make servers using the chipmaker’s Blackwell GPUs [graphics processing units] — for potentially violating US export restrictions in shipping servers that may contain Nvidia chips from Singapore to Malaysia. Malaysia is reportedly a throughpoint of chip smuggling to China.
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Dell stock fell roughly 3%, while Super Micro shares dropped 6%. Super Micro's decline comes after the server maker's shares suffered a nearly 30% loss last week. Shares of British chip designer Arm (ARM) also sank Monday, dropping 1.7%.
"Anonymous traders cannot acquire, deliver, install, use, and maintain Blackwell products in unauthorized countries," an Nvidia spokesperson told chof360 Finance in a statement. "We will continue to investigate every report of possible diversion and take appropriate action."
Nvidia uses Arm’s architecture, a blueprint for a computer chip design, for its Grace CPUs (central processing units, or “traditional” computer chips) used alongside its Blackwell GPUs in its latest AI server system designs manufactured by Dell and Super Micro.
"Investors are increasingly concerned [Nvidia] may be impacted by further restrictions on sales to China," DA Davidson analyst Gil Luria told chof360 Finance in an email Monday.
"So far, NVDA has argued that they are not accountable for their resellers selling into China, but that may not hold up as new restrictions are put in place."
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Nvidia’s earnings report last week showed its newest Blackwell AI server system designs contributed $11 billion to fourth quarter revenue, and the company said Blackwell products have achieved full-scale production despite earlier reports of glitches and overheating issues.
Nvidia CFO Colette Kress said on the company’s post earnings call last Wednesday: “[As] a percentage of total data center revenue, data center sales in China remained well below levels seen on the onset of export controls.”
The Biden administration first enacted export controls on the company’s chips in 2022.
“Absent any change in regulations, we believe that China shipments will remain roughly at the current percentage. The market in China for data center solutions remains very competitive,” Kress continued. “We will continue to comply with export controls while serving our customers.”
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