NVIDIA Corporation (NASDAQ: NVDA) stock is under pressure after news broke that a US lawmaker is preparing legislation to require tracking of advanced AI chips, including those made by NVIDIA, to combat widespread smuggling into China.
The initiative comes amid growing bipartisan concern that restricted US semiconductor technology is still finding its way into Chinese hands, potentially aiding the country’s AI development and military ambitions.
The Proposed Legislation
US Representative Bill Foster, a Democrat from Illinois and a former physicist, is set to introduce a bill in the coming weeks that would direct the Commerce Department to establish rules for:
- Verifying the location of high-performance AI chips after they are sold, ensuring they remain in authorized locations as per export control licenses.
- Preventing unauthorized chips from operating if they are not properly licensed.
This move follows reports that NVIDIA’s advanced AI chips, which are critical for powering everything from chatbots to complex image generators and even sensitive defense applications, have been smuggled into China despite strict export controls imposed by both the Trump and Biden administrations.
Investigations have revealed that some Chinese AI startups, such as DeepSeek, have built powerful systems using NVIDIA chips that were never supposed to reach China.
Technology and Feasibility
Foster and independent technical experts assert that the technology to track chips post-sale is already available and, in many cases, built into NVIDIA’s products.
The tracking would likely rely on chips communicating with secure servers, using signal timing to confirm their geographic location at a country level.
This approach is already used internally by companies like Alphabet’s Google to monitor the location of their proprietary AI chips for security purposes.
Industry and Political Response
The proposed legislation has garnered bipartisan support in Congress. Lawmakers argue that on-chip location verification is a practical solution to a pressing national security risk, as current enforcement agencies lack the tools to track chips once they leave the US.
The bill would give the Commerce Department six months to develop and implement the necessary regulations.
NVIDIA has publicly stated that it cannot track its chips after sale and declined to comment on the pending legislation.
However, industry analysts note that enhanced tracking requirements would likely add compliance costs and could affect the company’s sales to global data center and AI customers.
Market Impact
The news has weighed on NVIDIA’s stock price, reflecting investor concerns about increased regulatory scrutiny, potential compliance burdens, and the risk of further export restrictions impacting future revenue growth.
The semiconductor sector broadly remains sensitive to US-China trade tensions, and any new controls on AI chip exports could have far-reaching implications for NVIDIA and its peers.