Chinese tech firms reportedly rushing to secure more Nvidia chip capacity amid fears that spy scandal would spur tighter restrictions

Well, talk about a scandal sending everyone scrambling for the exits. Except in this case, Chinese tech firms aren't exactly looking to leave the party. Instead, they're trying to grab as much Nvidia computing power as they can before Washington potentially slams the door shut.

Reuters is reporting that AI companies in China are looking to secure more Nvidia-powered cloud computing capacity at overseas data centres, fearing that the controversy surrounding CEO Jensen Huang could accelerate tougher US restrictions, citing three people familiar with the matter.

The sources noted that a major Chinese cloud provider has reportedly discussed locking in overseas capacity, while smaller AI firms are exploring similar arrangements - particularly in Southeast Asia.

And there's good reason that Chinese tech firms are getting nervous here. For some context, the US already restricts China's access to Nvidia's most advanced AI chips. However, these companies have been able to work around some of those restrictions by renting computing power from data centres outside the country.

The fear now is that at some point, that very loophole could soon become a casualty of the latest political fallout.

Essentially, Huang's latest affair scandal and controversy with a woman who is suspected to be a Chinese spy has given lawmakers fresh ammunition to push for tighter export controls.

One particular concern is the proposed Remote Access Security Act (RASA), which would give Washington greater authority to regulate overseas cloud access to restricted US technology. The legislation on this passed the House in January and is awaiting Senate action currently.

Besides that, Reuters also reports that grey-market buyers in China are stockpiling restricted Nvidia processors amid fears of a broader crackdown on chip smuggling.

When it rains, it really does pour. And it's not just Nvidia that is feeling the pressure here.

If the US does move to restrict overseas cloud access, then Chinese AI developers could face higher computing costs and tighter capacity constraints. Meanwhile, Nvidia and overseas data-centre operators are at risk of losing access to an important customer base.

That's going to be a rough one and could shake the relatively fragile AI sentiment even more to end the week.

This article was written by Justin Low at investinglive.com.