As Nvidia Holds Its Annual Meeting, One Shareholder Raises the National Security Risk of Serving the PRC

By Steve Coonen

California-based artificial intelligence chipmaker Nvidia had its annual shareholder meeting on June 22. Owners of the company’s stock should have plenty to be thankful for. The explosion of investor interest in AI technologies since ChatGPT’s emergence in November of last year has caused Nvidia’s share price to climb 200% in 2023, leading it to become one of only seven trillion-dollar companies by market capitalization. But there is a darker side to Nvidia’s growth that even the Biden Administration is now recognizing: its sales to the People’s Republic of China (PRC) which undermine American national security.

On June 27 the Wall Street Journal reported that the Department of Commerce is considering new restrictions on exports of AI chips to China, including those made by Nvidia. Commerce is right to threaten action, but they’re acting too slowly (these controls should have been instituted long ago), and too narrowly (Commerce still allows American companies to sell the tools that China needs to dominate the legacy chip space). The Commerce Department shouldn’t get credit until they take a much more aggressive approach that puts national security ahead of commercial interests.

I write this as both a Nvidia shareholder and a longtime public servant. Following more than two decades in uniform as a U.S. Army artillery and foreign affairs officer, I spent nearly fourteen years as an analyst at the Defense Technology Security Administration (DTSA), the Pentagon’s unit for developing export control and technology security policies. By the end of my tenure, I was the DTSA’s Senior Foreign Affairs Advisor for China. In November 2021, I voluntarily resigned in protest from my post. The U.S. government had simply become too ineffective in denying the transfer of American technologies to China, which our enemies in Beijing are no doubt diverting for military purposes. I became convinced that semiconductor technology was especially key to China’s drive for military and economic dominance.

I appreciate the marvelous devices which Nvidia has developed to power future American economic growth and innovation, so much so that I first purchased Nvidia stock soon after my resignation from the Defense Department. But, as is common across the American business community, the company is making an unacceptable tradeoff of national security for profits. In November 2022, worried that a punishing set of U.S. export controls could eat into as much as $400 million in Chinese sales, Nvidia adapted its A100 processor to comply with U.S. restrictions. Nvidia’s compliance might seem laudable according to the letter of the law, but it falls short in spirit. Given the lack of meaningful accountability for what happens to American technologies once they reach China, the new A800 chip is a powerful product that will invariably be diverted to the Chinese military and security state to further oppress its citizens or be used to kill or injure American and allied warfighters. The better solution for Nvidia, and so many other tech companies, is to refuse to sell militarily useful technologies to China.

Unfortunately, the company seems overleveraged there. CEO Jensen Huang has said, “If we are deprived of the Chinese market, we don’t have a contingency for that.” Indeed, the Chinese market, including Hong Kong, made up 26% of Nvidia’s revenues in 2021. That likely explains why in March 2023 Nvidia again tweaked another product to accommodate U.S. export controls, turning its formidable H100 chip into the H800. Today heavyweight Chinese technology companies such as Alibaba, Baidu, and Tencent use the H800 for their cloud computing needs, and all have links to the PLA. Huang has also hyped Nvidia’s products as being integral to the development of AI startups in China. But China’s policy of military-civil fusion, which mandates the sharing of any useful civilian technologies with the Chinese military, means that any important Chinese AI innovations will be co-opted by the generals in Beijing and the prison wardens in Xinjiang.

To be clear, Nvidia is not the only company in the American semiconductor industry which must clean up its act on China. American semiconductor equipment manufacturers Applied Materials, Lam Research, and KLA have lobbied Washington to spare them from the effects of export controls targeting the Chinese chip industry. Since the Biden Administration’s landmark restrictions on October 7, each of these companies’ stocks are up at least 76%. The market has probably priced in the fact that Washington will likely not be issuing more controls that crush these companies’ China business entirely. Unfortunately, that inaction will allow the heavily subsidized Chinese legacy-node (chips 16 nanometers in size or larger) semiconductor industry to flourish, to the detriment of American economic and national security.

I understand the responsibility that business leaders like Mr. Huang bear to maximize returns for their shareholders, and I have benefitted from it. But companies like Nvidia have an even greater responsibility to protect Americans. I joined this year’s meeting virtually but didn’t hear anyone address this topic. Here’s to hoping that my fellow shareholders will join me in pressuring Nvidia’s leadership to grow the company without enabling China’s military and totalitarian ambitions.

Steve Coonen is a former U.S. Army artillery and foreign affairs officer.