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U.S. defense report highlights Chinese bypass of export controls via cloud providers
Wednesday, December 24, 2025 at 02:54 AM
The U.S. Department of Defense's China Military Power Report alleges that Chinese companies are utilizing cloud service providers to circumvent U.S. export controls on advanced AI chips, despite public denials from industry leadership regarding the scale of such activities.
Context
The Department of Defense recently released its latest China Military Power Report, confirming that Chinese military-linked entities are successfully bypassing U.S. export controls via cloud computing providers. This method allows remote access to high-end Nvidia GPUs, such as the H100, despite direct trade bans. These findings directly challenge public assertions from Nvidia CEO Jensen Huang, who has previously downplayed the risk of military misappropriation by suggesting that foreign forces would not build on "unreliable" U.S.-sourced technology.
For investors, this development signals an imminent regulatory pivot as the U.S. government moves to close the "cloud loophole" by early 2025. While Nvidia expects to generate nearly $12 billion this year from China-compliant hardware like the H20, new Commerce Department mandates could further restrict indirect compute access. Stricter oversight of global data centers presents a significant headwind, as it threatens to impact secondary revenue streams and complicate the logistics of the broader AI supply chain.
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