US chipmaker Nvidia has said it expects a $5.5 billion financial hit after the Biden administration tightened export restrictions on advanced semiconductors to China, deepening tensions in an ongoing tech standoff between the world’s two largest economies.

The California-based technology firm, which has been a central player in the artificial intelligence (AI) boom, revealed that it will now require a special export licence to sell its H20 AI chips to China, including Hong Kong. The H20 chip is one of the company's most sought-after products in the Chinese market.

The announcement, made in a regulatory filing on Tuesday, came after US federal officials informed Nvidia last week that the licensing requirement would remain in effect “for the indefinite future.” Shares in the company dropped nearly 6 per cent in after-hours trading following the news.

According to Nvidia, the US government cited concerns that the chips could be used in or redirected to supercomputing efforts in China — a domain where Washington has grown increasingly wary of Beijing’s rapid progress.

“The [government] indicated that the license requirement addresses the risk that the covered products may be used in, or diverted to, a supercomputer in China,” the company said in a statement, without offering further comment.

The $5.5 billion cost includes charges related to inventory, purchase commitments, and reserves tied to its H20 products.

The move comes against the backdrop of an intensifying US-China trade war, with both nations levying steep tariffs and tightening controls on key strategic sectors. Semiconductors have emerged as a critical flashpoint in this rivalry, given their central role in defence, AI, and other frontier technologies.

Marc Einstein, chief analyst at Counterpoint Research, said Nvidia’s estimate aligns with industry forecasts. “While this is certainly a lot of money, this is something Nvidia can bear,” he noted. “But as we have seen in the last few days and weeks, this may largely be a negotiating tactic. I wouldn’t be surprised to see some exemptions or changes made to tariff policy in the near future, given this not only impacts Nvidia but the entire US semiconductor ecosystem.”

Founded in 1993, Nvidia initially gained prominence for its high-performance graphic processing units (GPUs) used in gaming. However, the company’s strategic pivot toward AI-capable chips years before the current boom has made it a cornerstone of the AI industry.

Its products power a wide range of machine learning applications across industries, from autonomous vehicles to natural language processing. The firm’s prominence in AI has made it a focal point of Washington’s export control efforts, which aim to curb China’s access to cutting-edge computing power.

Earlier this year, Nvidia’s position was shaken when reports emerged that Chinese developers had built a rival chatbot, DeepSeek, at a fraction of the cost of US-based AI models — a development that some analysts said caught Washington off guard.

Rui Ma, founder of the Tech Buzz China podcast, said she expects that unless restrictions are relaxed, US and Chinese semiconductor supply chains will “fully decouple” in the near future.

“It doesn’t make any sense for any Chinese customer to be dependent on US chips,” she said, citing a growing oversupply of data centres in China that could support domestic alternatives.

Industry observers say the widening rift may prompt Chinese firms to accelerate the development of indigenous chips, while American firms like Nvidia look to shift focus to other markets or lobby for policy exemptions.