SINGAPORE, April 16 (Reuters) - Nvidia (NVDA.O), opens new tab did not alert some of its top customers ahead of tighter U.S. export regulations affecting its AI chip tailored for China, according to two individuals familiar with the situation.

The chipmaking giant revealed on Tuesday that it had been notified by U.S. authorities on April 9 that its H20 chip would now need a government-issued license to be shipped to China.

This latest restriction is part of Washington’s ongoing attempts to curb Beijing’s access to cutting-edge semiconductor technologies, aiming to preserve America’s lead in the artificial intelligence arena.

Despite this, leading Chinese cloud service providers were still expecting to receive shipments of the H20 by the end of the year, unaware of the licensing change. The sources noted that Nvidia’s sales team in China also appeared to be caught off guard when the news became public. They requested anonymity due to the sensitive nature of the information.

Nvidia chose not to provide a statement.

The new rule places Nvidia’s Chinese business under significant pressure, as the region represents one of the company’s most crucial markets. Since the beginning of the year, Nvidia had registered $18 billion in H20 chip orders, according to one of the aforementioned sources and a third individual.

China accounted for $17 billion of revenue for Nvidia in its previous financial year ending January 26, representing 13% of its overall sales.

Nvidia’s stock dropped by 6% in after-hours trading on Tuesday, following its disclosure of potential charges of up to $5.5 billion in the current quarter ending April 27. The company stated that it had been informed on Monday that the licensing requirement would remain in place indefinitely.

The anticipated financial hit stems from inventory, contractual obligations, and the need to make provisions related to H20 chip products, Nvidia explained.

Chinese tech heavyweights such as Tencent (0700.HK), opens new tab, Alibaba (9988.HK), opens new tab, and TikTok-owner ByteDance had ramped up their purchases of H20 chips to meet a growing need for cost-effective AI computing, with smaller firms like DeepSeek helping fuel that demand, Reuters previously reported in February.

Representatives from Alibaba, ByteDance, and Tencent did not immediately reply to questions seeking comment.

The H20 remains Nvidia’s main product that complies with U.S. rules for sales in China and was introduced shortly after the latest batch of export controls took effect in October 2023.

Since 2022, U.S. export laws have prohibited Nvidia from sending its most advanced AI chips to China for fear that they could support military applications.

Experts believe the latest limits on the H20 could open opportunities for Chinese semiconductor firms, particularly Huawei, which already produces rival AI chips.

"By restricting H20 shipments, U.S. policy is unintentionally encouraging Chinese firms to adopt Huawei’s AI semiconductors," said Nori Chiou, an investment director at Singapore-based White Oak Capital Partners.

"As Huawei secures more users and expands its partnerships, its chip design and software development capabilities could evolve rapidly," Chiou noted.