A major semiconductor index was down on Monday after the stock of industry giants slipped following the announcement earlier in the day that the U.S. administration would impose new export restrictions on advanced AI chips, also prompting criticism from the world's second most valuable company, Nvidia.
The United States unveiled new export rules on chips used for artificial intelligence, furthering efforts to make it tough for China and other rivals to access the advanced technology in Joe Biden's final days as president.
The restrictions' announcement drew a fiery response from Beijing and prompted criticism from the U.S. chip industry, while the European Union expressed its "concern" over the approach.
In recent years, Washington has expanded its efforts to curb exports of state-of-the-art chips to China, which can be used in AI and weapons systems, as Beijing's tech advancements spark concern among U.S. policymakers.
"The U.S. leads the world in AI now – both AI development and AI chip design – and it's critical that we keep it that way," Commerce Secretary Gina Raimondo told reporters.
The new rules update controls on chips, requiring authorizations for exports, re-exports and in-country transfers – while also including a series of exceptions for countries considered friendly to the U.S.
If a country is not exempted – and most are not – they will face a cap on imports of advanced chips.
Meanwhile, AI data centers must comply with enhanced security parameters to import chips.
The restrictions also tighten rules around the sharing of cutting-edge AI models.
China's Commerce Ministry called the new policy "a flagrant violation" of international trade rules, vowing that Beijing would "firmly safeguard" its interests.
The EU meanwhile expressed concern about U.S. measures and stressed that Europe did not represent a "security risk."
The latest move drew industry criticism and warnings that it would hurt U.S. competitiveness.
Semiconductor Industry Association chief executive John Neuffer said: "We're deeply disappointed that a policy shift of this magnitude and impact is being rushed out the door days before a presidential transition and without any meaningful input from industry."
He added in a statement that the rule could cause "lasting damage to America's economy and global competitiveness" by ceding key markets to rivals.
Chip titan Nvidia said in a blog post, "While cloaked in the guise of an 'anti-China' measure, these rules would do nothing to enhance U.S. security."
It said, "The Biden Administration now seeks to restrict access to mainstream computing applications with its unprecedented and misguided 'AI Diffusion' rule, which threatens to derail innovation and economic growth worldwide."
Analysts and investors meanwhile said on Monday that Nvidia faces a significant revenue threat due to the latest U.S. export restrictions.
"These rules will significantly limit (Nvidia's) market since as much as half its chips currently end up in countries that will be off-limits once the rules are applied," said D.A. Davidson analyst Gil Luria.
In a white paper released Monday, OpenAI said the federal government should help the AI industry grow, adding that "responsibly exporting" cutting-edge models to allies and partners will help them establish their own AI ecosystems.
The rules make it "hard for our strategic competitors to use smuggling and remote access to evade our export control," White House National Security Adviser Jake Sullivan said.
They also create "incentives for our friends and partners around the world to use trusted vendors for advanced AI," he added.
The new rules will take effect in 120 days, Raimondo said, giving President-elect Trump's incoming administration time to make changes potentially.
A senior U.S. official told reporters that freezing the rule could risk allowing China to stockpile U.S. hardware.
The Computer & Communications Industry Association cautioned that the rule would hinder U.S. firms' ability to deploy advanced semiconductors in data centers abroad.
In its post, Nvidia stressed that the first Trump term showed how the U.S. "wins through innovation, competition and by sharing our technologies with the world – not by retreating behind a wall of government overreach."
Trump put heavy tariffs on China during his first presidential term.
But his backers in Silicon Valley could also see the rules as an undue burden on their ability to export products.
On Monday, Nvidia shares lost around 2%.
Micron Tech was also down 4.31% and the PHLX semiconductor index was lower.
The Information Technology and Innovation Foundation (ITIF) said that pressuring countries to choose between Washington and Beijing could alienate partners and boost China's position in global AI.
"Many countries may opt for the side offering them uninterrupted access to the AI technologies vital for their economic growth and digital futures," said ITIF Vice President Daniel Castro.
