Chinese companies are exploiting loopholes amid U.S. sanctions to procure high-end AI chips, according to an exclusive report in The Information. The report states that ByteDance, TikTok’s owner, has been renting Nvidia’s (NASDAQ:NVDA) AI chips from Oracle (NYSE:ORCL), bypassing U.S. sanctions.
Don't Miss our Black Friday Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Similar to ByteDance, China Telecom, a state-owned wireless carrier, is also exploring such a deal with two other cloud providers. The U.S. government has placed restrictions on the export of AI chips to China, but there are no restrictions on the sale or renting of AI chips by Chinese companies if they are being used in the U.S.
Other Chinese companies, including Alibaba (NYSE:BABA) and Tencent (OTC:TCEHY), have also been in discussions with Nvidia to obtain chips for their data centers in the U.S.
Rising U.S. Restrictions on AI Chip Exports to China
The increasing geopolitical tensions between the U.S. and China have resulted in the U.S. government placing sanctions on the export of AI chips to China.
Last year, there was a strong buzz about the Biden administration in the U.S. passing an executive order that would have required cloud computing companies, like Amazon (NASDAQ:AMZN), to disclose some information about their customers to the U.S. government.
Companies Finding New Ways to Bypass the Sanctions
The increasing control over the export of AI chips to China has led Chinese companies to find new ways to bypass these controls. Earlier this year, Reuters reported that Chinese entities, including universities and research institutes, acquired high-end Nvidia artificial intelligence chips through resellers.
Meanwhile, Nvidia is trying to cater to the Chinese market by offering lower-end Graphics Processing Units (GPUs) like the H20. Still, it is facing stiff competition from local Chinese rival, Huawei’s AI chip. Additionally, it has been reported that the Chinese government has asked Chinese companies to give a higher preference to AI chips produced domestically, rather than chips imported from the U.S.
Meanwhile, Nvidia is trying to cater to the Chinese market by offering lower-end Graphics Processing Units (GPUs) like the H20. However, it is facing stiff competition from local Chinese rival Huawei’s AI chip. Additionally, it has been reported that the Chinese government has asked Chinese companies to prioritize domestically produced AI chips over those imported from the U.S.
Is Nvidia a Buy or Sell?
Analysts remain bullish about NVDA stock, with a Strong Buy consensus rating based on 27 Buys and three Holds. Year-to-date, NVDA has increased by more than 100%, and the average NVDA price target of $1,208.89 implies a downside potential of 0.09% from current levels.
