Nvidia could soon face tougher export rules, making it harder to sell chips to China

By Victor Reklaitis

'There is growing momentum for these bills in light of the Jensen Huang spy scandal,' one analyst says

President Donald Trump expressed support this week for Nvidia CEO Jensen Huang. Trump is shown here on Oct. 8 presenting the National Medal of Science to Huang during a "Golden Age of American Innovation" event in Washington.

While Nvidia's board of directors has expressed confidence in CEO Jensen Huang after he admitted to an extramarital affair with a possible Chinese intelligence asset, Democratic and Republican lawmakers aren't voicing the same level of trust in the pioneering entrepreneur and his giant company.

Those misgivings in Washington look set to trigger increased restrictions on the chip company's dealings with China as soon as next month - and lawmakers are also preparing for hearings and investigations.

Even before the spy scandal grabbed the spotlight in Washington and on Wall Street, bills targeting China's access to certain Nvidia chips already had a chance of getting passed by Congress in December through an annual defense package. Those bills now have a higher likihood of becoming law through that "must-pass" defense measure, according to a range of analysts.

"There is growing momentum for these bills in light of the Jensen Huang spy scandal and the White House's commitment to provide suggested revisions to them," said Owen Tedford, senior research analyst at Beacon Policy Advisors, in an email to MarketWatch. "We still do not see these bills as sure things, though, and believe that if something does pass, it is more likely to be a watered-down version of the current text, closer to what the White House has proposed."

The bills in question include the Chip Security Act, which aims to put the brakes on the illegal smuggling of advanced American artificial-intelligence chips to China and other foreign adversaries, along with the AI Overwatch Act, which seeks to tighten export controls on such chips. Another key measure is the Match Act, which is intended to tighten export controls on sensitive chip-making equipment.

Those three bills were part of the version of the annual defense package that was approved by the Senate earlier this year, but they didn't make it into the House of Representatives' version of the National Defense Authorization Act, or NDAA. There's now considerable attention on what happens with those measures as House and Senate negotiators work on resolving differences so that a final NDAA can pass both chambers of Congress and get signed into law next month by President Trump.

The Chip Security Act has an 80% chance of enactment because of the fallout from Huang's affair, up from 60% previously, according to Veda Partners analysts Henrietta Treyz and Dan McCarthy. They gave the Overwatch Act a 65% chance of becoming law, up from 40%, and put the Match Act's odds at 60%, up from 35%.

The Veda analysts said it will be important to track the news around Huang's closed-door hearing on Nov. 18 before the House committees focused on intelligence, foreign affairs and China. They said they'll be watching for any signs that information indicating the Trump administration's policies on chips and AI was shared with the possible Chinese intelligence asset, Alice Huang. She is a former executive at Megaspeed, a Singapore-based cloud-computing company that buys Nvidia chips.

The likelihood of the Trump administration taking a tougher approach to Nvidia also has risen, "but only slightly," Treyz and McCarthy said in a note. The most likely executive action is increasing enforcement around chip smuggling into China.

Another potential move by the White House that's not as likely is stopping Chinese companies' remote access to advanced chips via data centers in other countries, according to the Veda team. A more aggressive option would be revoking Nvidia's license to export its H200 chips to China, but that's "unlikely in the short term given Trump's history with Huang and longstanding interest in supporting Nvidia," Treyz and McCarthy wrote.

Trump on Monday expressed support for the Nvidia CEO, saying Huang "built a great company."

"I think he's a very honorable guy, and I feel very confident that he'll be in good shape," the president told reporters at the White House. "He said he had absolutely no idea that the person in question was a spy."

Nvidia announced Sunday that its board of directors is probing whether Huang was targeted as part of a foreign-intelligence scheme, and the CEO sent an email to Nvidia employees on Sunday admitting that he was unfaithful to his wife. Huang also said in his email that he is "committed to protecting Nvidia and supporting America's national security."

Nvidia shares (NVDA) were trading down nearly 6% on Tuesday, after falling more than 4% on Monday. The stock's in the red for the year to date, shedding almost 10%.

What lawmakers are saying

While Trump has backed Huang and his company, Republican lawmakers have joined Democrats in voicing concerns.

"I hope he comes forward and is transparent and divulges all this information," said Rep. John Moolenaar of Michigan, the Republican chairman of the House's China committee, in a CNBC interview on Tuesday. If Nvidia's internal investigation becomes more about "damage control," however, "that's not going to work," Moolenaar said.

"We have basically a Cold War race with technology, and we cannot allow the premier company at the forefront of this to, in some way, be irresponsible," he added.

Republican Rep. Michael McCaul of Texas said in a social-media post that the U.S. "should immediately pause the shipment of advanced AI chips to China until we can get to the bottom of this incident and ensure our national security is not being undermined."

Republican Sen. Jim Banks of Indiana and Democratic Sen. Elizabeth Warren of Massachusetts, the sponsors of the AI Overwatch Act, said in a joint statement that Huang's affair "raises important questions Nvidia must answer." They also called for final passage of their bill.

Democratic Sen. Chris Coons of Delaware told NPR there should be "deep inquiry" because of the "real likelihood that American national security has been compromised - and because we need to figure out who's really got their hand on the wheel."

Nvidia set a record with its spending on Washington lobbying last year with outlays of at least $4.97 million, according data from OpenSecrets, a watchdog organization. It's on track to top that level this year, having already spent $4.69 million through 2026's first three quarters. The company has disclosed relying on 34 lobbyists this year, and it has indicated that it has lobbied on the Chip Security Act and the AI Overwatch Act.

-Victor Reklaitis

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11-10-26 1537ET