Nvidia stock, AI tokens crash after Biden Administration’s new export AI chips rule

Just a week to Trump’s inauguration the Biden administration is still making policies. The outgoing administration updated the export rule, which is designed to regulate the flow of AI to “adversaries” like China. In response, Nvidia (NVDA) stock declined by as much as 3% on Monday.

The White House announced that the rule would restrict the number of AI processors, known as GPUs (graphics processing units), that most countries can order without a special license to 50,000.  The export limit would not be applied to orders of 1,700 or fewer GPUs.

Notably, the US will not impose any restrictions on 18 of its allies, including the UK, Canada, Germany, Japan, Taiwan, and South Korea.

If enacted, the “Interim Final Rule on Artificial Intelligence Diffusion” issued today would impose new restrictions on how many artificial intelligence chips corporations can transfer to foreign nations. That is without obtaining special permission from the US government. Nvidia has been the most affected, with an estimated 90% share of AI processors.

Still, Nvidia shares have been down since Election Day, far underperforming the S&P 500 index’s 5% gain during the period. The price was expected to soar as the year began, but more factors are causing the downturn.

Nvidia reacts to Biden’s administration

The White House said in a statement, “In the wrong hands, powerful AI systems have the potential to exacerbate significant national security risks, including by enabling the development of weapons of mass destruction, supporting powerful offensive cyber operations, and aiding human rights abuses, such as mass surveillance.”

As indicated by the language applied, the Biden administration implemented this regulation to combat China and Russia. Nevertheless, it is significantly impacting the AI business, particularly Nvidia. The announcement said, “Today, countries of concern actively employ AI—including US-made AI—in this way and seek to undermine US AI leadership.”

In response, Nvidia reacted by saying that the new “AI Diffusion” restrictions have the potential to stunt global innovation and economic growth. Also, they have the ability to challenge the prior Trump administration’s efforts to establish a successful environment for AI development.

 Nvidia said in a statement, “In its last days in office, the Biden Administration seeks to undermine America’s leadership with a 200+ page regulatory morass, drafted in secret and without proper legislative review […] “This sweeping overreach would impose bureaucratic control over how America’s leading semiconductors, computers, systems, and even software are designed and marketed globally.”

Nvidia also asserted, “Rather than mitigate any threat, the new Biden rules would only weaken America’s global competitiveness, undermining the innovation that has kept the US ahead.” However, Nvidia indicated, “We look forward to a return to policies that strengthen American leadership, bolster our economy, and preserve our competitive edge in AI and beyond.” 

Notably, regardless of the company’s power, it is not included in the list of technology companies that have contributed to Trump’s inaugural fund. Also, their CEO, Jensen Huang, has not been invited to Mar-a-Lago. It is likely that this will change now that Nvidia has a valid reason to seek favor.

How are Nvidia customers going to cope?

The rules not only stop the export of AI chips but also set security standards to manage the “weights” for AI models, which are the specific factors that each AI model uses to make its predictions. 

Companies that run data centers, like Microsoft and Google, can also apply for special government licenses that let them trade AI chips with fewer restrictions. In return, the Biden administration sets security standards that the companies must follow.

According to reports, Microsoft  alone reportedly purchased 485,000 of Nvidia’s Hopper GPUs in 2024 alone, while Meta purchased 224,000 of the AI chips.

The objective of the new data center regulations is to maintain the development of the most sophisticated AI models within the borders of the United States and its partners.

Still,  in a statement attributed to Microsoft president Brad Smith, reports say that Microsoft is capable of fully complying with the high-security standards of this rule and meeting the technology needs of countries and customers around the world that rely on them.

AI tokens tank in tandem

Since last week, the market for AI-tagged crypto coins has suffered a sharp decline, leaving many tokens with significantly reduced valuations. This downturn comes as the broader crypto market continues to trade sideways, which has seemingly heavily impacted the AI token sector.

The news from the White House has not made the AI market any brighter. According to on-chain data from CoinGecko, the AI market cap today is $40.2 Billion, a 10.1% decline in the last 24 hours.

Most AI tokens have lost between 22% to 55% of their market share.

However, not all AI coins are suffering a market loss. The ChainGPT (CGPT) coin is up 33.5% the last 7 days. The present decline goes hand in hand with the overall crypto market crash.

The global cryptocurrency market capitalization is $3.3 trillion today, down 6.26% in the last 24 hours. As of today, Bitcoin (BTC) trades at $91,883.83, down 3.4% in the last 24 hours.

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