Since 2022, the US has restricted sales to China of the most advanced chips for training and running AI. The logic is security: such chips make it possible to build powerful models, and powerful models can also serve militaries, espionage and cyberattacks. Over the years the restrictions were expanded and tightened, and Nvidia, which holds most of the market, had to develop specially weakened versions for the Chinese market and obtain government licenses to sell even those.
The ban applies to the chips themselves, but the chips are small, expensive and in very high demand, a formula that invites smuggling. The common route is through a third country: a company in a country that sales are allowed to, for example in Southeast Asia, buys servers with advanced chips, declares they are for a local data center, and in practice some continue to China. Sometimes the servers are shipped physically, and sometimes they stay put while Chinese companies get remote access, which raises a separate legal question.
The difficulty in enforcement is that the manufacturer does not control what happens after the sale. Nvidia sells to server makers and distributors, and they sell on. To know a particular processor did not reach China, you have to track it along the entire chain and check it is really in the data center where it is supposed to be. In 2025 Singapore brought charges in a fraud case involving servers with Nvidia chips, a case that showed how easy it is to disguise the real destination.
This is where Megaspeed comes in, the Singapore cloud company at the center of the Jensen Huang affair. US Commerce Department investigators suspected it diverted Nvidia chips to China, and according to a Bloomberg report, large gaps were found between the number of chips it imported and what was actually found in its data centers. The company denies it, and Nvidia says it knows where every deployed processor is. The suspicion carries different weight because of reports that a former senior figure at the company is suspected of working for Chinese intelligence.
What does it mean going forward? If large-scale smuggling is found, the pressure in Washington will be to tighten the rules: require manufacturers to track every chip, restrict sales to transit countries and perhaps require a mechanism that lets a chip be located remotely. Each of these steps would hurt Nvidia's sales, and indirectly also the Israeli companies that supply it with components, equipment and software. A CEO's personal affair may turn into policy that changes the whole industry.
