Core Viewpoint - Nvidia is facing significant challenges in the Chinese market due to security concerns related to its H20 graphics cards, which have been flagged for potential backdoor risks by U.S. authorities [1][4]. Group 1: Legislative Actions and Implications - U.S. lawmakers are advocating for advanced chips to be equipped with tracking capabilities, which has been incorporated into the proposed Chip Security Act [6][11]. - The Chip Security Act aims to implement location verification technology in chips to prevent them from being smuggled into restricted areas, particularly China [11][13]. - The act requires manufacturers to provide evidence of the chips' location and allows for remote disabling if they are found in prohibited regions [11][13]. Group 2: Impact on Nvidia - Nvidia's CEO, Jensen Huang, is reportedly frustrated with the U.S. government's actions, which complicate the company's efforts to sell its H20 graphics cards in China [4][32]. - The implementation of the Chip Security Act could impose additional operational costs on Nvidia, estimated at around $1 million for software updates and between $2.5 million to $12.5 million annually for establishing a network of trusted landmark servers [30][31]. - The situation presents Nvidia as a victim of U.S. government policies rather than a perpetrator of wrongdoing, complicating its business prospects in China [32]. Group 3: Technological Aspects - The proposed location verification technology is based on a mature, hard-to-crack method known as Ping-based positioning, which could be implemented in existing AI chips [21][26]. - This technology allows for the calculation of distances between devices and servers, enabling location tracking without the need for GPS [24][26]. - The requirement for AI chips to send verification information to landmark servers could render them unusable if disconnected from the internet, raising concerns about operational feasibility [26][30]. Group 4: Industry Response and Future Outlook - The article suggests that the ongoing developments highlight the need for domestic innovation in chip technology, with companies like Huawei making strides in this area [34]. - The potential for the Chip Security Act to become ineffective hinges on the advancement of domestic alternatives, which could mitigate reliance on U.S. technology [34].

Core Viewpoint - The U.S. government is intensifying its efforts to regulate the export of advanced chips to China, particularly through the proposed Chip Security Act, which mandates the inclusion of tracking mechanisms in chips to prevent unauthorized transfers and usage [2][3][8]. Group 1: Legislative Developments - The Chip Security Act is currently under discussion in the U.S. Congress, requiring companies like NVIDIA to embed location tracking modules in their chips [2]. - The Act aims to establish security mechanisms in exported chips to prevent unauthorized transfers, with specific provisions for location verification [2][4]. - The U.S. Department of Commerce is tasked with creating implementation guidelines within 180 days of the Act's passage, focusing on the feasibility of location verification technologies [2]. Group 2: Technological Mechanisms - The proposed tracking mechanism, referred to as "digital leashes," would allow for remote disabling of chips if illegal transfers are detected [4][5]. - A "security module" would be installed on AI chips to ensure they operate with authorized software and firmware, enabling remote verification and control [5]. - Current technologies for remote verification are already implemented in some CPUs and GPUs, suggesting a potential for easy adaptation to AI chips [5]. Group 3: Market Implications - The introduction of the Chip Security Act may negatively impact NVIDIA's business, as customers may be deterred by the perceived lack of privacy and control over their purchased chips [8]. - The Act could provide an opportunity for Chinese semiconductor companies, as they may not need to implement such tracking mechanisms, thus appealing to customers seeking trust and privacy [8][9]. - The scrutiny of NVIDIA's H20 chip security risks by Chinese authorities may further diminish its market share in China, aligning with China's push for domestic semiconductor alternatives [9].