Semiconductor shakeup: Trump targets Biden’s AI export curbs—industry reacts

Why Is the U.S. Announcing a Shift on AI Chip Export Controls?

The Trump administration has declared its intention to rescind the Biden-era “AI diffusion rule,” a controversial export control policy that was scheduled to take effect on May 15, 2025. While the rule remains officially in place as of this writing, U.S. officials have confirmed that they are working toward replacing it with a more flexible, bilateral framework for regulating the global sale of artificial intelligence (AI) chips.

Originally introduced in January 2025, the AI diffusion rule aimed to categorise countries into three tiers based on risk assessments and limit the export of high-performance AI chips accordingly. The objective was to curb the spread of advanced computing capabilities to nations deemed adversarial to U.S. strategic interests, particularly the People’s Republic of China.

However, the framework quickly faced backlash from chipmakers, foreign governments, and global trade advocates. Critics called the rule overly complex, diplomatically disruptive, and economically counterproductive—especially given its inclusion of key U.S. allies like India, Switzerland, and Israel in restrictive export categories. In response, the Trump administration now plans to unwind the regulation and craft a new strategy that aligns national security objectives with the commercial needs of U.S. semiconductor firms.

What Did the Biden-Era AI Diffusion Rule Propose?

The AI diffusion rule represented a significant expansion of U.S. export controls. Under its structure, countries were placed into risk-based categories: green (low risk), amber (medium risk), and red (high risk). Depending on a nation’s classification, U.S. firms were limited in the volume of advanced chips they could export annually to end-users in those jurisdictions.

For instance, countries in the amber category—including several U.S. allies—were subject to a strict limit of 5,000 units of GPUs per customer, per year. These limitations were seen as especially burdensome for international cloud service providers and sovereign AI infrastructure projects reliant on U.S. technology.

The rule also introduced enhanced documentation and end-use verification procedures, pushing significant compliance costs onto chipmakers like Nvidia Corporation and Advanced Micro Devices, Inc. (AMD). The Biden administration had defended the policy as necessary to prevent militarisation of AI in adversarial states. But its rollout generated concern about damaging U.S. influence in emerging tech regions and undermining allied trust.

What Is the Trump Administration Proposing Instead?

While the diffusion rule has not yet been formally repealed, the Trump administration has publicly committed to its replacement. Officials from the U.S. Department of Commerce indicated that the new policy will eliminate the rigid tiering system in favor of a more dynamic, bilateral negotiation model. The administration is currently in consultation with industry groups and allied governments to draft this updated framework.

Under the envisioned structure, chip exports would be governed by tailored agreements with individual countries. These would set specific conditions around permitted chip volumes, security assurances, and end-user controls. The new approach aims to protect critical technology while granting trusted partners wider access to U.S. semiconductor innovations.

As the details of this framework are still under development, the current diffusion rule technically remains in place. However, sources told The Financial Times and Reuters that implementation is unlikely while the administration finalizes the successor regime.

How Are Nvidia and AMD Responding to the Policy Shift?

Even in the absence of a formal repeal, the administration’s declared pivot has positively influenced investor sentiment toward AI chipmakers. Nvidia Corporation’s shares rose 3.4% on May 7, closing at $989.75, while AMD gained 2.1% to finish at $186.12. Analysts cited reduced policy risk and restored export optionality as key drivers behind the stock moves.

Bloomberg terminal data revealed increased institutional inflows into AI-focused ETFs such as the VanEck Semiconductor ETF (SMH) and the iShares PHLX Semiconductor ETF (SOXX), both of which count Nvidia and AMD among their top holdings. Goldman Sachs reported elevated call option volumes for both companies, reflecting growing confidence in expanded overseas demand.

Nvidia had earlier estimated that $3–4 billion in annual orders might be at risk under the Biden rule. The anticipated policy reversal may now allow those contracts—particularly in Saudi Arabia and the United Arab Emirates—to proceed under a more permissive framework.

What Are the Diplomatic and Trade Implications?

The shift from a tiered global control regime to bilateral export deals marks a strategic recalibration in U.S. technology diplomacy. Countries like Saudi Arabia, the UAE, and India—each investing heavily in sovereign AI capabilities—are expected to benefit from new agreements negotiated on a case-by-case basis.

This policy transformation mirrors earlier efforts in the 1980s when the U.S. restructured export controls on Japanese semiconductors to preserve geopolitical alliances. The Trump administration appears to be leveraging AI chip access as a diplomatic tool to deepen tech partnerships while isolating adversaries such as China, North Korea, and Iran.

However, some national security analysts remain cautious. They warn that without clearly defined and enforceable criteria, bilateral arrangements could introduce new vulnerabilities in tech transfer oversight. Enforcement mechanisms under the new regime, expected to include blockchain licensing records and digital delivery validation, will be crucial to its success.

What Do Analysts and Market Strategists Expect?

Sell-side analysts have interpreted the administration’s signal as a near-term positive for semiconductor revenues and international expansion. Bernstein’s Stacy Rasgon said the development “removes significant policy overhang” from Nvidia and AMD’s forward guidance, though he cautioned that a new regulatory framework must arrive promptly to avoid legal uncertainty.

Morgan Stanley raised its 12-month price targets for both companies by 3–5% following the administration’s announcement. Meanwhile, Jefferies projected that loosening export restrictions could boost FY2025 AI chip revenue for U.S. firms by $5–6 billion across data center verticals.

The Philadelphia Semiconductor Index (SOX) rose 2.8% on May 7, with the gains concentrated among AI-infrastructure suppliers. Analysts also noted that chip firms with established compliance operations and global sales infrastructure are best positioned to navigate the evolving regulatory landscape.

What’s Next in the Policy Timeline?

While the current AI diffusion rule remains formally active, sources within the Commerce Department have confirmed that it is unlikely to be enforced under the current administration. The Trump White House has directed agency staff to begin drafting the replacement policy, with initial public consultation expected in Q3 2025.

A formal executive order rescinding the Biden rule is anticipated before year-end, subject to inter-agency reviews and congressional briefings. The new bilateral framework could be implemented as early as Q4 2025 if negotiations with key allies are completed on schedule.

President Trump is also expected to discuss AI chip exports during his upcoming Middle East visit, with Saudi Arabia and the UAE identified as priority partners under the revised policy. These countries have been actively building sovereign data centers and LLM training facilities, making them high-potential markets for U.S. chipmakers.

Sentiment Summary and Institutional Flows

Institutional investors have responded swiftly to the policy announcement. BlackRock and Vanguard increased exposure to U.S. semiconductor indices, while hedge funds rotated into long positions on Nvidia and AMD. Retail sentiment, tracked by Fidelity and Charles Schwab platforms, also showed increased retail buying interest in large-cap AI infrastructure stocks.

Although the current rule technically remains in effect, investors are pricing in its practical obsolescence, betting on a pro-industry framework that supports cross-border AI hardware deployments without ceding strategic control.