Nvidia chips used to power advanced AI are finding their way to the Chinese military despite US blockade

A black market of Nvidia chips used to power advanced AI systems is booming in China despite US export controls, the Times reported.

• Nvidia, an American company, makes powerful chips that are fueling a global AI boom.
• The US limits the kind of chips Nvidia can sell in China to hinder the country's AI development.
• But smugglers are skirting the blockade, funneling chips to China's military, the Times reported.

A network of smugglers is helping the Chinese military obtain powerful microchips made by Nvidia, an American company, all under the nose of a US national security blockade meant to curb China's AI development.

The United States is competing with China to dominate the AI industry. In an effort to maintain its global dominance, the Biden administration plans to expand its ban on exports of semiconductor manufacturing equipment to include Israel, Taiwan, Singapore, and Malaysia.

The United States also worries that advanced artificial intelligence could be used to modernize foreign militaries, which could threaten American security worldwide.

Nvidia's chips are fueling the global AI boom, elevating the company to one of the most profitable in the world. The United States only allows Nvidia to sell a less-powerful version of its chip in China.

However, an investigation by The New York Times found that a network of companies is finding ways around the blockade, obtaining and selling Nvidia's most advanced chips to state-affiliated groups in China. Representatives from 11 companies inside China told the Times they "sold or transported banned Nvidia chips." The outlet also found dozens of websites offering the chips online inside the country.

A review of procurement documents from the Center for Advanced Defense Studies, a Washington-based nonprofit, showed that more than a dozen state-affiliated entities have purchased black-market Nvidia chips.

The US government has flagged some of those entities as having aided the Chinese military. One of the entities — a university affiliated with the Chinese Academy of Sciences — was even using AI powered by Nvidia chips to study nuclear weapons, the Times reported.

One Chinese entrepreneur told the Times that his company had shipped a batch of 2,000 servers with "the most advanced" Nvidia chips to China in April. The sale was worth $103 million, he told the outlet. He said the chips weren't hard to obtain and that he regularly acquired banned chips from three to four suppliers, which he sells to repeat customers in China.

Nvidia says it is following US restrictions but that it can't control its entire supply chain.

"We comply with all US export controls and expect our customers to do the same," Clarissa Eyu, a spokesman for Nvidia, told Business Insider. "Our pre-owned products are available through many secondhand channels. Although we cannot track products after they are sold, if we determine that any customer is violating US export controls, we will take appropriate action."