Outgoing US President Joe Biden landed a severe blow on Israel when he included it in a new presidential order limiting the distribution of advanced graphics processors around the world, with the aim of preventing these processors getting into the hands of China and Russia, which are liable to turn them to military use. The chips form the basis of artificial intelligence applications and supercomputers.
Just a week before he vacates the White House, President Biden signed the Interim Final Rule on Artificial Intelligence Diffusion (AI Diffusion Rule), which includes Israel in a list of countries to which certain restrictions will apply on the import of graphics processors produced by companies such as Nvidia, Intel, and AMD.
This is despite the fact that some of the companies develop their graphics chips in Israel. The AI Diffusion Rule sets out three categories of countries: a category exempt from the restrictions in the rule, comprising eighteen countries; an intermediate category of 150 countries that will be able to import the chips subject to certain requirements; and a third category of countries, such as Russia and China, which will subject to an almost complete embargo. Israel is placed in the intermediate category.
Israeli companies will be able to apply to import advanced graphics chips, so what’s the problem?
Israeli companies and institutions will have to stand in a long line at the US Department of Trade to obtain a license, which will create a bottleneck and slow the import of advanced graphics chips to Israel, at a critical time for the growth of the country’s artificial intelligence sector. Furthermore, in Israel’s category, a restriction applies to the number of chips that a country will be allowed to install: an annual quota of 50,000 for three years from 2025 to 2027. Companies in countries in this category with special National Verified End User status will be able to buy up to 320,000 chips over two years.
"The regulations allow countries in this category to sign security and use arrangements with the US administration and double the ceiling to 100,000 chips," Adv. Yair Geva, head of the Tech Division at Herzog Fox & Neeman, told "Globes". "Another exception to the quantitative restriction that is relevant to the Israeli tech industry is that orders consisting of collective computation power up to 1,700 advanced GPUs do not require a license and are not counted against a country’s quota. Most orders for chips are for numbers below this limit, by universities, research institutes, high-tech companies, and health organizations.
"Another exception applies to the major data center companies, Amazon and Microsoft for example, allowing them to build data centers based on advanced chips even in restricted countries, regardless of the quantitative limits, subject to various conditions, such as security measures, a duty to report to the US authorities, and even their human rights record. These global companies will not be allowed to deploy more than 50% of their computing capacity outside the US, not more than 25% of it in the intermediate category countries, and not more than 7% in any one of those countries," Geva further explains.
Individual companies in those countries will be able to obtain Validated End User status, which will remove most of the restrictions. It is not clear exactly what kind of chips will be restricted, since a single one of the new Blackwell chips from Nvidia is equivalent to four H100 chips of the previous generation in AI model training tasks, and to 30 such chips in inference tasks. It may be that in this way Israeli companies will be able to obtain a general exemption, and that the damage will be limited to small companies or to early-stage companies that have not yet received an exemption.
Can Trump cancel the new regulations?
"The regulations come into force 120 days from their publication, and so the possibility remains that the administration of Donald Trump will introduce changes in them before they come into force," Geva says.
What does Biden seek to achieve?
Graphics processors represent the basis of supercomputers that could endanger US national security, for example by breaking US military codes, or operating weaponry by artificial intelligence. The US and China are engaged in an arms race in this area. Chinese company Huawei is a leading player in the development of Chinese graphics processors that form the basis of the country’s supercomputers and server farms, and that also have military uses.
Can the decree be averted?
Israel is not a partner of the US in legislation designed to prevent the leak of information and technologies to rivals of the US such as China. Under the previous minister of science Orit Farkash-Hacohen and the previous chairperson of the National Security Council Eyal Hulata, a process termed Trusted Technologies in the US was begun, a process that required legislation. The two countries agreed that in return for the formation of a strategic technology forum, Israel would consider means of preventing technology leaks, but the government fell and the process did not continue.
The Ministry of Economic Affairs stated, "The ministry, in conjunction with other entities in industry and the government, is working to improve Israel’s standing vis-à-vis US regulation through the development of legislative tools that will meet current US standards."
Who is harmed in Israel?
The main hit from the export regulations is to Nvidia, which commands more than 90% of global sales of graphics processors. The company published a sharp response yesterday. After surveying recent advances in AI and their benefits, the company states: "That global progress is now in jeopardy. The Biden Administration now seeks to restrict access to mainstream computing applications with its unprecedented and misguided ‘AI Diffusion’ rule, which threatens to derail innovation and economic growth worldwide." The other week, Oracle VP Ken Glueck wrote of the new regulations: "We are stifling innovation and strangling emerging business models. Worse, without fully contemplating the rule’s effects, we are likely handing most of the global AI and GPU market to our Chinese competitors."
Other victims are Intel and AMD, which manufacture graphics processors, and Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures Nvidia processors. On the Israeli side, Nvidia Israel’s ability to import graphics processors for its supercomputer and development of new technologies will be hampered, although it will probably obtain an exemption from the AI Diffusion Rule rapidly.
Other Israeli companies that will feel the impact are those developing AI-based products, such as AI21 Labs and Mobileye.
Companies planning to construct server farms supporting AI are also likely to be affected. "Globes" reported recently that Sheinfeld Engineering was interested in building a server farm in Israel for AI, which the new regulation is liable to impede. It could also affect the Israel Innovation Authority’s plans for a supercomputer with 1,000 graphics processors for academic and industrial use. On the face of it, the Ministry of Defense also stands to be affected, although special agreements between the two countries could ease that.
Do the restrictions only apply to imports of chips?
No. They will also apply to the import of AI models such as those of OpenAI and Google. These companies will have to obtain special export licenses for each of the 150 countries in the restricted imports category in which Israel is listed. The restrictions will not apply to open code AI models such as those of Meta and Mistral.
What happened to chip stocks after the order was published?
In the past week, Nvidia’s share price has fallen 11%, as reports emerged of the new restrictions. AMD has fallen by more than 10% in the same period. The share price of Broadcom, which develops graphics processors for Apple, has fallen 5%, and that of Marvell Technology has fallen 4%.
The VanEck Semiconductor ETF (SMH) is down 5% over the week.
Published by Globes, Israel business news - en.globes.co.il - on January 14, 2025.
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