The U.S. Commerce Department said Tuesday it plans to block sales of more advanced artificial intelligence chips to China in the coming weeks.

According to the US government, the new rules are intended to close loopholes that emerged after restrictions on the export of AI chips came into force last year.

Shares of chip stocks fell sharply in Tuesday trading on the news. Nvidia closed down about 5%, while Broadcom and Marvell fell about 2% and 1%, respectively. Shares of AMD fell more than 1%; Intel closed down about 1.4%.

Those previous restrictions banned sales of the Nvidia H100, the processor of choice for US-based AI companies like OpenAI. Instead, Chinese companies were able to buy a slightly slower version called the H800 or A800 that complies with U.S. restrictions, primarily by slowing the connection speed on the device, a so-called interconnect.

The new rules will also ban those chips, senior administration officials said in a briefing with reporters.

The restrictions could also affect chips sold by Intel and AMD. Other rules are likely to hinder the sale and export of semiconductor manufacturing equipment to China by companies such as Applied Materials, Lam and KLA.

The restrictions cut off a large and growing market for AI semiconductors and could raise concerns that the Chinese government will take economic retaliation against U.S. companies doing business in the country.

Nvidia appears to have anticipated the restrictions, saying in August that they would not have an immediate material impact on profits but could be damaging in the long term.

“We comply with all applicable regulations while working to deliver products that support thousands of applications across many different industries,” an Nvidia spokesperson told CNBC. “Given the global demand for our products, we do not expect a significant impact on our financial results in the near term.”

Nvidia said in an SEC filing on Tuesday that the restrictions apply to the company’s A100, A800, H100, H800, L40, L40S and RTX 4090 chips. It also said that entire systems sold with these chips were affected, including the DGX and HGX systems. Nvidia said the restrictions could impact the company’s ability to complete new product development on time.

The goal of the U.S. restrictions is to prevent Chinese access to advanced semiconductors that could power breakthroughs in artificial intelligence, particularly for military purposes, U.S. Commerce Secretary Gina Raimondo said in a call with reporters. They are not intended to hurt Chinese economic growth, U.S. officials said.

“The updates are specifically designed to control access to computing power, which will significantly slow the development of the People’s Republic of China’s next-generation border model, and could be used in ways that pose a threat to the United States and our allies, “particularly because they could be used for military purposes and modernization,” Raimondo said.

Senior administration officials say the U.S. will simply restrict exports of data center chips if they exceed a power threshold set last October or a new power density threshold measured in flops per square millimeter.

Companies that want to export AI chips to China or other embargoed regions must notify the US government.

Senior administration officials also said they plan to expand the list of semiconductor manufacturing facilities subject to U.S. restrictions.

Chips for consumer goods such as game consoles or smartphones are not subject to export controls, although companies may have to notify the Commerce Department of their orders if the chips are fast enough.

The U.S. government is also closing loopholes that regulate the shipment of chips to companies headquartered in China or other embargoed regions such as Macau, to prevent a loophole in which a foreign subsidiary buys chips and then ships them to China.

Raimondo said the new restrictions would affect only a small portion of chip exports to China.

“The fact is that even after this rule is updated, China will continue to import hundreds of billions of dollars worth of semiconductors from the United States,” Raimondo said.

The rules will be publicly announced for 30 days and then take effect, U.S. officials said.

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—CNBC’s Kristina Partsinevelos contributed reporting.

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