Nvidia Faces New Chip Export Curbs as Spy Scandal Fuels Congress

By Grace Kim

The Chip Security Act now has an 80% chance of becoming law, up from 60% before the Jensen Huang spy scandal, according to Veda Partners analysts Henrietta Treyz and Dan McCarthy. Washington is moving to tighten Nvidia's China business as soon as next month, and the chipmaker's stock is paying the price.

Nvidia shares fell nearly 6% on Tuesday, after dropping more than 4% on Monday. The stock has shed almost 10% year to date.

What happened, and why Washington cares

Nvidia's board said Sunday it is probing whether Huang was targeted in a foreign-intelligence scheme. In an email to employees the same day, Huang admitted he was unfaithful to his wife and said he is "committed to protecting Nvidia and supporting America's national security."

The other party in the affair, Alice Huang, is a former executive at Megaspeed, a Singapore-based cloud-computing company that buys Nvidia chips. Lawmakers want to know whether she had access to sensitive policy information. Trump told reporters at the White House on Monday that Huang "built a great company" and said he's "a very honorable guy, and I feel very confident that he'll be in good shape." The president added: "He said he had absolutely no idea that the person in question was a spy."

Even before the scandal, bills targeting China's access to Nvidia chips had a shot at passing through the annual defense package in December. The scandal raised the odds.

Which bills are moving, and by how much?

Three measures are in play, and they mostly hit Nvidia alone — the company makes the most advanced chips China wants:

• Chip Security Act — targets illegal smuggling of advanced American AI chips to China and other adversaries. Veda puts its odds at 80%, up from 60%.
• AI Overwatch Act — tightens export controls on AI chips. Odds at 65%, up from 40%.
• Match Act — tightens export controls on sensitive chip-making equipment. Odds at 60%, up from 35%.

All three cleared the Senate's version of the National Defense Authorization Act earlier this year but were left out of the House version. House and Senate negotiators are now reconciling the two bills, aiming for final passage and President Trump's signature next month.

Owen Tedford, senior research analyst at Beacon Policy Advisors, sees momentum but not certainty. "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," he said 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."

What could the White House do on its own?

The Veda team says the odds of tougher executive action have risen "but only slightly." The most likely move is increased enforcement around chip smuggling into China.

A less likely option: blocking Chinese companies' remote access to advanced chips via data centers in other countries. The most aggressive — revoking Nvidia's license to export its H200 chips to China — is "unlikely in the short term given Trump's history with Huang and longstanding interest in supporting Nvidia," Treyz and McCarthy wrote.

What are lawmakers saying?

Republicans have joined Democrats in pressing the company. Rep. John Moolenaar of Michigan, the Republican chairman of the House's China committee, told CNBC on Tuesday: "I hope he comes forward and is transparent and divulges all this information." He warned that if Nvidia's internal investigation becomes "damage control," "that's not going to work." He added: "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."

Rep. Michael McCaul, Republican of Texas, said in a social-media post 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."

Sens. Jim Banks, Republican of Indiana, and Elizabeth Warren, Democrat of Massachusetts — sponsors of the AI Overwatch Act — said Huang's affair "raises important questions Nvidia must answer" and called for final passage of their bill. Sen. Chris Coons, Democrat of Delaware, told NPR there should be "deep inquiry" because of the "real likelihood that American national security has been compromised."

What happens on Nov. 18?

Huang is scheduled for a closed-door hearing on Nov. 18 before House committees on intelligence, foreign affairs and China. The Veda analysts will watch for any signs that information on the Trump administration's chip and AI policies reached Alice Huang.

Nvidia spent a record $4.97 million on Washington lobbying last year, per OpenSecrets, and has already spent $4.69 million through the first three quarters of this year, with 34 disclosed lobbyists — including on the Chip Security Act and the AI Overwatch Act. That money is about to face its toughest test.