The United States Department of Commerce has moved to block shipments of advanced Nvidia AI chips to Chinese companies operating outside China, closing a loophole that allowed subsidiaries of Chinese firms in places like Malaysia to buy cutting-edge processors without a license.

The US Department of Commerce's Bureau of Industry and Security (BIS) issued the new guidance on Sunday. Nvidia, the world's biggest AI chip maker, is directly affected. The rule targets Chinese firms headquartered in China but operating overseas, including subsidiaries in countries such as Malaysia. AMD, which also makes advanced chips like the MI350x, is indirectly covered by the same export controls.

The guidance clarifies that a US export license is required for advanced AI chips-including Nvidia's most sophisticated Blackwell and Rubin processors when the end user is an entity headquartered in China, even if that entity is located outside China. The rule enforces license requirements that have technically been in place since 2023 but were not fully applied to overseas subsidiaries of Chinese firms.
The loophole emerged after the Commerce Department in May 2025 said it would not enforce the Biden administration's AI Diffusion Rule, which regulated global access to AI chips. For nearly a year, Chinese companies' overseas subsidiaries could buy Nvidia's Blackwell chips without a license. Industry sources estimate that hundreds of thousands of advanced chips may have been exported during this period.

Why US closing loophole

The US wants to prevent Chinese firms from accessing the most advanced AI chips needed to develop critical AI capabilities. Former State Department official Chris McGuire called the loophole a "HUGE problem" because it allowed Chinese overseas branches to buy Nvidia Blackwell chips without licensing. The guidance aims to safeguard critical American technology and stop China's military-linked entities from gaining access.

How Nvidia and data centers will be affected

A Nvidia official said the new guidance does not change anything for the company because the Commerce Department had already imposed a license requirement in a letter earlier. The guidance does not require data centers to stop using already-purchased chips or cut off servicing of advanced computing hardware such as servers. The US Department of Commerce has yet to reveal the exact number of chips exported during the loophole period.