U.S. Export Regulations on AI Chips Raise Concerns for Israel's Tech Industry

New export regs may see Israel requiring a license to buy U.S. chips developed in the country

Under the recently proposed U.S. export rules for advanced artificial intelligence processors, only entities in the U.S. and 18 allied countries can get advanced AI hardware without any restrictions. 120 countries -- including both allied nations and foes like China and Russia -- will either face restrictions or will be generally prohibited from buying devices like Nvidia's H100 or B200 GPUs for AI and HPC. Among the restricted countries are close allies of the U.S., including Israel, which already called the proposal a major blow. "This will have a very significant impact on Israel," a market source told CalcalisTech. "Limiting the country's computing power is a major blow. These technologies are already embedded in millions of computers today. Every processor destined for Israel will need approval from a U.S. regulator, delaying research, data center construction, and the provision of cloud services." Advocates for the Israeli tech industry, such as Eli Greenbaum of the Arnon-Tadmor Levy law firm, argue the restrictions could push startups to establish themselves in countries with fewer limitations, like the U.S. or the U.K., reports the Times of Israel. Although Intel develops its Gaudi-series AI processors in Israel, the country struggling to fully realize its AI potential despite ranking in the Top 10 AI ecosystems. If the new rules are enacted, the country may face additional setbacks in the global AI race. Ironically, if the new regulations pass, then Israeli entities might face curbs (i.e., they will need a license) on buying Intel's Gaudi 3 processors developed in Israel. The proposed regulation categorizes countries into three groups. Trusted allies -- the so-called Tier 1 countries -- like Australia, Canada, Japan, Taiwan, the U.K. and most of Western Europe are largely exempt from AI export controls due to low risks. Tier 3 countries are countries of concern -- such as China, Russia, and others under U.S. arms embargoes (Group D:5 and Macau) -- are presumed ineligible to receive advanced U.S. AI processors. All remaining nations, including allies like the Baltic countries, Israel, Poland, Saudi Arabia, and the United Arab Emirates, fall into an intermediate category, or Tier 2 countries. Tier 2 countries will have national limits on advanced AI processor imports from the U.S. However, entities in Tier 2 countries can get up to 1,700 Nvidia H100 GPUs (or equivalent) without any export license. Such orders will also not count toward national AI chip limits. Most orders, particularly from universities, medical institutions, and research groups for non-sensitive purposes, fall into this category. Big companies that need plenty of AI processors must be validated as National Validated End Users (NVEUs) by complying with the high-security standards, which will enable them to purchase up to 320,000 Nvidia H100 GPUs (or equivalent) over the next two years, according to Council on Foreign Relations. Non-VEU entities in Tier 2 countries can still purchase up to the equivalent of 50,000 H100 GPUs per country. Under special government-to-government arrangements between a country and the U.S., that cap can be doubled to 100,000 of Nvidia's H100 processors. However, for big entities working on AI models with hundreds of billions of parameters, even 320,000 current-generation Nvidia processors over the next two years might not be enough. This means that they (or rather their suppliers) will have to apply for a U.S. export license for every batch of GPUs they procure, which takes time and time is a critical factor in the rapidly developing AI sector. "It will create a huge bottleneck at the US Commerce Department because you do not only have Israel but many countries on that list," the sources told CalcalisTech. The regulations, which allow for a 120-day comment period, may be finalized under the incoming Trump administration. Officials aim to act swiftly to preserve what they describe as America's 6 to 18-month lead in AI over competitors like China, but industry voices warn the measures could ultimately hinder U.S. leadership in AI innovation if America limits access to its technology.

Biden's ruling on GPU processors could harm Israel's economy

The Israeli tech industry has voiced concerns that this rule could delay the deployment of GPU processors in Israel, and slow the growth of the local high-tech industry. Outgoing US President Joe Biden has delivered another "bombshell" ahead of leaving the White House by including Israel among 150 countries restricted in the export of graphics processing unit (GPU) chips. Under the recently approved AI Diffusion Rule guidelines, Israel has been classified among the nations restricted from importing American-made GPU chips -- used for training and developing artificial intelligence engines and previously employed for cryptocurrency mining -- produced by companies such as NVIDIA, Intel, and AMD. Ironically, many of these processors are developed in Israel itself. As part of these restrictions, any Israeli entity seeking to purchase more than 1,700 of these chips will need to submit a special request over the next three years, detailing their intended use and obtaining an import permit from the US Department of Commerce. Even with approval, purchases will be capped at 50,000 chips. Under strict security and usage agreements with the US government, the cap may extend to 100,000 chips. The Israeli tech industry has voiced concerns that this rule could delay the deployment of GPU processors in Israel, slow the growth of the local high-tech industry, and impact any sector reliant on GPUs. Contrary to popular belief, this measure -- officially aimed at addressing Democratic Party concerns about China's rise in AI -- may inadvertently align with Israel's ongoing advancements in chip development. The restriction focuses on the quantity of chips with specific processing capabilities and is primarily technical. However, companies like NVIDIA and Intel are already competing to develop chips with greater processing power. Huang's Law According to "Huang's Law," the processing power of GPUs doubles approximately every two years (NVIDIA's RTX 50 series has been doubling processing power every 18 months). Consequently, a cap on the number of chips becomes less impactful as individual chip capabilities continue to improve. This trend may even accelerate the existing race to enhance GPU processing power. Israel's semiconductor industry is already focused on chip development, and this restriction may increase global demand for these capabilities. Moreover, Israel's geographic constraints make it less suited for establishing vast GPU farms, with the country excelling instead in chip design and development rather than building large-scale data centers. The primary impact is likely to be on chip companies, including American firms like NVIDIA, AMD, Broadcom, and Marvell, which rely heavily on global exports and have opposed this rule. Additionally, the incoming administration under Donald Trump, set to take office soon, may reverse or adjust this restriction before it takes effect in 120 days. Another critical point not widely discussed is that these chips are used not only for AI data centers but also for encryption, decryption, and encoding purposes. The restriction could impede companies specializing in cybersecurity and those engaged in cryptocurrency mining based on the Proof of Work model (such as Bitcoin mining). This limitation affects companies outside the US and the 18 exempted countries, including Ireland, the UK, Sweden, Denmark, Finland, and Norway -- nations that traditionally have limited political alignment with Israel. Advertisement The author is an attorney and CPA, as well as CEO of JAGuar Reg&Comp, specializing in high-risk regulatory fields - artificial intelligence and digital currencies. Sign up for the Business & Innovation Newsletter >>

Biden delivers blow to Israel's tech industry citing Russia, China

Just a week before he vacates the White House, President Biden signed the Interim Final Rule on Artificial Intelligence Diffusion (AI Diffusion Rule). Outgoing US President Joe Biden landed a severe blow on Israel when he included it in a new presidential order limiting the distribution of advanced graphics processors around the world, with the aim of preventing these processors getting into the hands of China and Russia, which are liable to turn them to military use. The chips form the basis of artificial intelligence applications and supercomputers. Just a week before he vacates the White House, President Biden signed the Interim Final Rule on Artificial Intelligence Diffusion (AI Diffusion Rule), which includes Israel in a list of countries to which certain restrictions will apply on the import of graphics processors produced by companies such as Nvidia, Intel, and AMD. This is despite the fact that some of the companies develop their graphics chips in Israel. The AI Diffusion Rule sets out three categories of countries: a category exempt from the restrictions in the rule, comprising eighteen countries; an intermediate category of 150 countries that will be able to import the chips subject to certain requirements; and a third category of countries, such as Russia and China, which will subject to an almost complete embargo. Israel is placed in the intermediate category. Israeli companies will be able to apply to import advanced graphics chips, so what's the problem? Israeli companies and institutions will have to stand in a long line at the US Department of Trade to obtain a license, which will create a bottleneck and slow the import of advanced graphics chips to Israel, at a critical time for the growth of the country's artificial intelligence sector. Furthermore, in Israel's category, a restriction applies to the number of chips that a country will be allowed to install: an annual quota of 50,000 for three years from 2025 to 2027. Companies in countries in this category with special National Verified End User status will be able to buy up to 320,000 chips over two years. "The regulations allow countries in this category to sign security and use arrangements with the US administration and double the ceiling to 100,000 chips," Adv. Yair Geva, head of the Tech Division at Herzog Fox & Neeman, told "Globes". "Another exception to the quantitative restriction that is relevant to the Israeli tech industry is that orders consisting of collective computation power up to 1,700 advanced GPUs do not require a license and are not counted against a country's quota. Most orders for chips are for numbers below this limit, by universities, research institutes, high-tech companies, and health organizations. "Another exception applies to the major data center companies, Amazon and Microsoft for example, allowing them to build data centers based on advanced chips even in restricted countries, regardless of the quantitative limits, subject to various conditions, such as security measures, a duty to report to the US authorities, and even their human rights record. These global companies will not be allowed to deploy more than 50% of their computing capacity outside the US, not more than 25% of it in the intermediate category countries, and not more than 7% in any one of those countries," Geva further explains. Individual companies in those countries will be able to obtain Validated End User status, which will remove most of the restrictions. It is not clear exactly what kind of chips will be restricted, since a single one of the new Blackwell chips from Nvidia is equivalent to four H100 chips of the previous generation in AI model training tasks, and to 30 such chips in inference tasks. It may be that in this way Israeli companies will be able to obtain a general exemption, and that the damage will be limited to small companies or to early-stage companies that have not yet received an exemption. Can Trump cancel the new regulations? "The regulations come into force 120 days from their publication, and so the possibility remains that the administration of Donald Trump will introduce changes in them before they come into force," Geva says. What does Biden seek to achieve? Graphics processors represent the basis of supercomputers that could endanger US national security, for example by breaking US military codes, or operating weaponry by artificial intelligence. The US and China are engaged in an arms race in this area. Chinese company Huawei is a leading player in the development of Chinese graphics processors that form the basis of the country's supercomputers and server farms, and that also have military uses. Advertisement Can the decree be averted? Israel is not a partner of the US in legislation designed to prevent the leak of information and technologies to rivals of the US such as China. Under the previous minister of science Orit Farkash-Hacohen and the previous chairperson of the National Security Council Eyal Hulata, a process termed Trusted Technologies in the US was begun, a process that required legislation. The two countries agreed that in return for the formation of a strategic technology forum, Israel would consider means of preventing technology leaks, but the government fell and the process did not continue. Stay updated with the latest news! Subscribe to The Jerusalem Post Newsletter Subscribe Now The Ministry of Economic Affairs stated, "The ministry, in conjunction with other entities in industry and the government, is working to improve Israel's standing vis-a-vis US regulation through the development of legislative tools that will meet current US standards." Who is harmed in Israel? The main hit from the export regulations is to Nvidia, which commands more than 90% of global sales of graphics processors. The company published a sharp response yesterday. After surveying recent advances in AI and their benefits, the company states: "That global progress is now in jeopardy. The Biden Administration now seeks to restrict access to mainstream computing applications with its unprecedented and misguided 'AI Diffusion' rule, which threatens to derail innovation and economic growth worldwide." The other week, Oracle VP Ken Glueck wrote of the new regulations: "We are stifling innovation and strangling emerging business models. Worse, without fully contemplating the rule's effects, we are likely handing most of the global AI and GPU market to our Chinese competitors." Other victims are Intel and AMD, which manufacture graphics processors, and Taiwan Semiconductor Manufacturing Company (TSMC), which manufactures Nvidia processors. On the Israeli side, Nvidia Israel's ability to import graphics processors for its supercomputer and development of new technologies will be hampered, although it will probably obtain an exemption from the AI Diffusion Rule rapidly. Other Israeli companies that will feel the impact are those developing AI-based products, such as AI21 Labs and Mobileye. Companies planning to construct server farms supporting AI are also likely to be affected. "Globes" reported recently that Sheinfeld Engineering was interested in building a server farm in Israel for AI, which the new regulation is liable to impede. It could also affect the Israel Innovation Authority's plans for a supercomputer with 1,000 graphics processors for academic and industrial use. On the face of it, the Ministry of Defense also stands to be affected, although special agreements between the two countries could ease that. Do the restrictions only apply to imports of chips? No. They will also apply to the import of AI models such as those of OpenAI and Google. These companies will have to obtain special export licenses for each of the 150 countries in the restricted imports category in which Israel is listed. The restrictions will not apply to open code AI models such as those of Meta and Mistral. What happened to chip stocks after the order was published? In the past week, Nvidia's share price has fallen 11%, as reports emerged of the new restrictions. AMD has fallen by more than 10% in the same period. The share price of Broadcom, which develops graphics processors for Apple, has fallen 5%, and that of Marvell Technology has fallen 4%. The VanEck Semiconductor ETF (SMH) is down 5% over the week. Sign up for the Business & Innovation Newsletter >>