The Hidden Cost of U.S. Chipmaking Controls: Korean Memory Giants Pay the Price, Alibaba Grins

TradingKey - As Nvidia CEO Jensen Huang previously stated, the U.S. government’s years-long restrictions on exporting chips and advanced technology to China have proven ineffective. On Monday, shares of Samsung and SK Hynix plunged after being removed from the U.S. “Validated End-User” (VEU) list, while Alibaba’s in-house chip development has Wall Street rethinking the future of the Nvidia-led AI ecosystem.

On Monday, September 1, Samsung (005930) fell 3.01%, and SK Hynix (000660)  dropped 4.83% — a direct result of the Trump administration’s latest escalation in semiconductor technology restrictions targeting China.

On Friday last week, the U.S. Department of Commerce announced it would revoke exemptions allowing Intel, Samsung, and SK Hynix to use U.S. technology in their operations within China, the world’s largest semiconductor market.

In 2022, the U.S. banned Dutch and South Korean firms from selling advanced chips and manufacturing equipment to China. However, Samsung and SK Hynix had secured “Validated End-User” (VEU) status, which exempted them from the licensing requirements for exporting chipmaking equipment to China.

Under the new rules, the U.S. government has closed this “export control loophole,” making it significantly harder for Samsung and SK Hynix to ship critical equipment to China to upgrade and maintain their chip manufacturing facilities there.

Both Korean giants operate major factories in China, producing high-value DRAM and lower-value NAND flash memory chips. Notably:

• Samsung’s Xi’an plant accounts for 30% of its global NAND output
• SK Hynix’s Wuxi facility produces 35% of its DRAM, while the Dalian plant acquired from Intel contributes 37% of its NAND capacity

NH Investment & Securities said that concerns over the Nvidia ecosystem are growing, and investment sentiment in the domestic memory chip sector may weaken in the short term.

SK Securities noted that if U.S. policies become long-term, the production lines of Samsung and SK Hynix in China will become outdated, leading to a profound shift in China’s traditional chip competitive landscape.

Bernstein analysts said:

“It does demonstrate that geopolitical tensions will likely only become tighter over time, further accelerating domestic substitution trends.”

Coincidentally, rumors of Alibaba’s self-developed AI chip have further reinforced this outlook. The Wall Street Journal reported last week that Alibaba is developing a new AI chip focused on AI inference, compatible with Nvidia’s architecture, aiming to fill the gap left by U.S. technology restrictions on Nvidia chips.

While Alibaba has not confirmed the chip development, the company revealed during its Q2 earnings call that it has prepared “backup solutions” for global AI chip supply and policy changes.

Following the earnings release, Morgan Stanley praised Alibaba as “China’s best AI enabler,” noting that AI is strongly driving accelerated growth in Alibaba Cloud, with next fiscal quarter growth expected to rise from 26% to over 30%.

After Alibaba’s U.S.-listed shares surged 13% last Friday, Alibaba’s Hong Kong stock (9988.HK) jumped 18.50% on Monday.