US trade regulations barring China’s access to AI-related chips and technology could soon apply to cloud providers, not only to chip suppliers.
Federal regulators are in discussions with US cloud service providers to potentially add restrictions on China’s access to AI processors inside cloud providers’ resources, according to insights revealed in an investor note from UBS on Wednesday. Such trade restrictions already apply to certain AI chips sold into China, including several GPUs made by Nvidia.
Several UBS analysts hosted a call with Alan Estevez, under secretary for industry and security at the Department of Commerce on Tuesday, when Estevez described the potential for AI processor restrictions at cloud providers prior to October 2024 when another round of Commerce restrictions is expected.
Department of Commerce “is now in discussions with major US Cloud Service Providers to add such restrictions—these may come prior to the next IFR update in October 2024,” the note by UBS analysts says. It is signed by eight UBS analysts, including Timothy Arcuri, who normally joins Nvidia quarterly earnings calls.
The note also offered some hope to Nvidia on its sales of AI chips into China. ”All is not lost for Nvidia regarding its China data center business,” the UBS note says. Estevez told UBS that Nvidia could still apply for licenses for chip SKUs outside of the banned sales of H100 and L40S. Such SKUs would potentially be for Nvidia’s RTX4090, A40 and A30.
Also, UBS said Estevez had described how Commerce is engaged with chip suppliers to find pathways to add cryptographic signatures to chips and other measures that “would give the US enough comfort to allow shipments of H100 and other SKUs that are currently banned.”
UBS added that the call with Estevez “read positively for Nvidia in the sense that it will likely develop additional compliant SKUs and maybe add technology that even allow it to ship H100.”
Aside from Nvidia, Estevez revealed that Commerce is “considering deeper restrictions on SMIC,” referring to Semiconductor Manufacturing International Corp., a partially Chinese state-owned chip foundry company.
SMIC is on the US government’s Entity List already, joining a group of companies that the US has restricted trade with. The deeper restrictions would be to include limitations on servicing of tools at a SMIC South FinFET fab, or even “outright export controls on all equipment exports to SMIC."
UBS mentioned that Estevez said the Bureau of Industry at Security at Commerce “is looking at biotech and quantum computing as additional areas where US exports may be restricted.”
The comments by Estevez of adding areas for export restrictions mimicked comments by Commerce Secretary Gina Raimondo made Saturday at the Reagan National Defense Forum.
RELATED: Raimondo calls out Nvidia, others that sell AI chips to China
In her appearance, Raimondo noted how Nvidia had twice worked around trade restrictions with chips sold to China, adding, “If you redesign a chip around a particular cut line that enables to do AI, I’m going to control it the very next day.”
While her comment might appear to be harsher than the tone Estevez reportedly expressed with UBS, Nvidia has consistently said it has worked with US officials on ways to stay within US trade rules. However, Nvidia has also made it clear that China is an important market for its advanced chips, and the same applies to Intel and AMD, among others.
Commerce and the Biden administration have repeatedly raised concerns that Chinese companies could use AI chips from US companies to supply technology used by China for weapons that would threaten US security. “Protecting our national security matters more than short-term revenue,” Raimondo said Saturday.