US scraps AI diffusion rule, opening chip sales to allies including Saudi Arabia, UAE, and India

Summary

The U.S. Department of Commerce has rescinded the Biden-era AI diffusion rule, removing caps on how many advanced chips countries like India, Switzerland, Saudi Arabia, and the United Arab Emirates can purchase. The move opens markets that were previously restricted under the premise of national security.

The department justified the rescission on three grounds: the rule stifled American innovation, imposed onerous regulations on U.S. companies, and damaged diplomatic relations with allied nations. Nvidia, Microsoft, and Oracle had all opposed the rule publicly, arguing it limited their international sales without meaningfully impeding China, the primary target of U.S. chip export controls.

The original reasoning proved flawed in practice. Countries denied Nvidia hardware simply adopted alternatives. China's Huawei Ascend chips, while less efficient than Nvidia's offerings, are now the likely foundation for DeepSeek's next training run. The cost premium is material but manageable. Training models on Huawei hardware costs roughly 30 percent more, a gap China can absorb with cheap power and capital. Since AI performance is defined by orders of magnitude, a 30 percent efficiency penalty does not prevent capability development.

By restricting friendly allies, the U.S. pushed them toward Chinese alternatives rather than securing them as customers. The Trump administration has repositioned the strategy to sell aggressively to trusted nations while maintaining hard export controls on adversaries. Jeffrey Kesler, under secretary of commerce for industry and security, framed it as pursuit of a "bold, inclusive strategy" to distribute American AI technology globally while keeping it from hostile states.

The announcement also targeted Huawei directly, warning that using Ascend chips anywhere in the world violates U.S. export controls. This signals that enforcement against third parties using Chinese hardware will tighten. The dual move opens doors to allies while clamping down on Huawei's global reach, reflecting a shift from broad restrictions to precision targeting.

Nvidia, AMD, and Intel are immediate beneficiaries and can now sell to markets previously off-limits. Intel has lost nearly 30 percent of its value over the past year despite the AI supercycle. The rescission also aligns with Trump's Middle East tour and a wave of AI infrastructure deals being announced by U.S. tech companies in the region.