Nvidia Corp., a company that designs computer chips, claimed on Wednesday that U.S. officials had instructed it to stop exporting two of the best computing chips for artificial intelligence work to China.

This could severely limit the ability of Chinese companies to perform advanced tasks like image recognition and hurt a sector in which Nvidia expects to generate $400 million in revenue this quarter.

The company said that new license requirements limit the sale of its MI250 chips to China, but it thinks the requirement does not apply to its MI100 chips. The business stated that it doesn't think the new regulations will materially affect its operations.

Following the competitor Nvidia's statement that the new regulations could cost it up to US$400 million in sales, AMD shares had fallen 2% in after-hours trade.

The new rule, according to Nvidia, "will address the risk that the covered products may be used in, or diverted to, a "military end use" or "military end user" in China." U.S. authorities reportedly informed the company.

The announcement marks a significant increase in the U.S. crackdown on China's technological prowess as tensions over Taiwan's future, where chips for Nvidia and nearly all other big semiconductor companies are produced, rise.

Chinese organizations won't be able to affordably perform the kind of advanced computing used for image and speech recognition, among many other tasks, without American chips from companies like Nvidia and its rival Advanced Micro Devices.

In consumer applications like smartphones that can respond to inquiries and tag photographs, image recognition, and natural language processing are prevalent. Military applications include searching satellite pictures for bases or weapons, as well as screening digital communications for intelligence gathering.

Nvidia claimed that if Chinese companies choose not to purchase alternative Nvidia products, it could lose $400 million in sales of the affected chips it has scheduled for China this quarter. It stated that while it intends to ask for exceptions to the regulation, there are "no assurances" that U.S. authorities will do so.

According to Stacy Rasgon, a financial analyst at Bernstein, the disclosure indicated that 10% or so of Nvidia's data center sales-which investors have closely followed in recent years-come from China and that the company's sales decline will probably be "manageable."

"It's not (investment) thesis changing, but it's not a good look," Rasgon added. Regarding potential future escalation, he stated, "What happens on both sides now is the question."