Huang in suspense, chips may crack

Jensen Huang's future at Nvidia is under scrutiny after the mega-chipmaker announced an internal investigation into his relationship with a Chinese businesswoman suspected to have passed intelligence to Beijing. AI, beleaguered by political changes on Capitol Hill and a looming debt crisis, could have done without a corporate espionage scandal that may disrupt flow of advanced semiconductors. Nvidia's most advanced AI processors are restricted under US export controls that effectively ban their direct import into China. Huawei is actively developing its line-up of supercomputing architecture to challenge Nvidia's market dominance. A widening probe into Huang's indiscretion could bring Nvidia's substantial non-AI business in China into the spotlight. Chinese buyers will seek safer alternatives from Huawei that is rapidly closing the tech gap.

Countries like India importing Nvidia's AI chips don't have China's advantage in local manufacturing. The US treats India as a strategic partner and imposes a cap on total processing power of US-designed chips it can purchase in a year. These must be accompanied by end-use and security commitments. The review pathway is streamlined compared to restricted countries. But licensing requirements impose transaction costs in hi-tech trade. These costs could mount if anti-proliferation efforts become more rigorous. Chinese retaliation imposes additional trade costs on third parties like India. China has restricted export of rare earths and key minerals such as gallium, germanium and antimony used in semiconductor manufacturing. Indian industry is particularly dependent on rare earth imports from China, and has no substitutes immediately available.

Huang is a hands-on boss at Nvidia. Although he owns a small amount of the company's stock, replacing him will be difficult. In the new political dispensation, Washington may be forced to take a harder look at its export control regime and make it more watertight. 'Jensanity' offers a good trigger.