Things are moving fast in macroeconomics land right now. But rather than play economic crisis (or rather, economic media headline) whack-a-mole, we’ll stay in our lane this week and address the so-called U.S. “AI Diffusion Rule.”
For reference, here was our previous blog article/video on tariffs’ impact on semiconductors. https://chipstockinvestor.com/will-tariffs-doom-chip-stocks-and-end-the-bull-market/
What was the AI diffusion rule?
Officially, the proposal was called the “U.S. Framework for Artificial Intelligence Diffusion.” Proposed on January 15, 2025, in the final week of the Biden administration, the framework of rules greatly expanded on pre-existing U.S. technology export controls of AI – especially hardware, but also software – by creating a three-tiered system to control how AI diffused (spread) around the world.
Tier 1 countries and organizations domiciled therein had few to no restrictions, and were as follows: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Republic of Korea, Spain, Sweden, Taiwan, the United Kingdom, and the United States (naturally).
Tier 2 countries and organizations therein had new expanded restrictions placed upon them, requiring them to meet certain export and re-export (like purchase and re-sale of accelerated computing data center equipment) control certifications. Limits on U.S. tech company exports were also placed on such countries. Most of the world was placed into this tier, which was the primary reason for the controversy surrounding the new AI diffusion framework.
Tier 3 countries and organizations therein continued to have very strict export limits and/or outright restrictions placed on them. This list included China, Russia, Iran, Venezuela, etc.
Why is Chip Stock Investor only just now addressing AI diffusion?
We have addressed it many times in our weekly live Q&As, videos, and such. But we are formally addressing it now, because there is official clarity on what will actually happen. Despite all the hubbub about it, we saw very little chance of the framework being implemented as-is due to the change in U.S. administrations on January 20th. The AI diffusion rule was set to be implemented on May 15th. But as expected, some folks in the Trump administration have been hinting that the rule would be formally rescinded. On the eve of May 13th, the rescission of AI diffusion was made official. https://www.bis.gov/press-release/department-commerce-rescinds-biden-era-artificial-intelligence-diffusion-rule-strengthens-chip-related
So… what happens next?
No one really knows. Seriously, let that sink in deep before you rush out to the internet to get the latest scoop. However…
In the meantime, U.S. technology companies – especially those like Nvidia and AMD – still have to apply for export licenses to certain destinations. This is the reason why Nvidia and AMD made it official and took asset impairment charges on existing inventory in recent weeks.
The Trump administration says a new AI framework will be announced at some point in the future.
Until then, it seems that the rescission of AI diffusion will be used as a bargaining chip with the formerly so-called “tier 2” and “tier 3” countries. The trade deal with Saudi Arabia last night, and Nvidia and AMD’s announced participation in AI infrastructure buildout with HUMAIN (subsidiary of the Saudi sovereign wealth fund) illustrates this new goal. https://nvidianews.nvidia.com/news/humain-and-nvidia-announce-strategic-partnership-to-build-ai-factories-of-the-future-in-saudi-arabia https://ir.amd.com/news-events/press-releases/detail/1250/amd-and-humain-form-strategic-10b-collaboration-to-advance-global-ai
What should investors do?
Probably nothing.
Our market round-trip is once again complete – from euphoria, to panic, to rising euphoria again. Just as we cautioned late in 2024 and early 2025 to be wary of buying hype, then the flip side of that to avoid selling on fear following the announced “Liberation Day,” there are no awards (nor financial rewards) for making emotional-driven decisions.
The path ahead will remain incredibly bumpy, just as it has been for nearly a decade now in this new computing infrastructure-fueled economy highlighted by geopolitical trade conflict. Radical moderation of temperament – fighting your feelings of FOMO, and feelings of extreme fear – is going to be your ally, if you can figure out how to pull it off for yourself personally.
