MW Jensen Huang once said there was 'no evidence' Nvidia chips were getting diverted to China. The scandal at Super Micro suggests otherwise.
By Britney Nguyen and Hannah Pedone
Experts say the case highlights how the industry appears to not have taken the issue of chip smuggling seriously
Super Micro's stock fell 33% on Friday in the wake of an export-control scandal.
Last spring, Nvidia CEO Jensen Huang said there was "no evidence" the company's advanced artificial-intelligence chips were being diverted to China, amid U.S. efforts to clamp down on chip sales to that country over national-security concerns.
"These are massive systems," Huang explained to Bloomberg News. "The Grace Blackwell system is nearly two tons, and so you're not going to be putting that in your pocket or your backpack anytime soon," he said, referring to the chip maker's latest-generation AI platform.
Less than a year later, a scandal at Super Micro Computer $(SMCI)$ suggests it's a huge problem.
A federal indictment unsealed Thursday alleges that employees at Silicon Valley server maker Super Micro helped smuggle Nvidia's (NVDA) graphics processing units into China, in violation of strict U.S. export controls - making a sham of American policies meant to safeguard advanced semiconductor technology.
See more: Super Micro's stock sinks 33% after co-founder's indictment. Here are Wall Street's biggest questions.
Prosecutors allege that the defendants "took extensive measures to conceal their scheme." For example, photos included in the indictment show the use of a hair dryer to move serial numbers to boxes of nonworking, replicated dummy servers in an attempt to mislead the U.S. Bureau of Industry and Security - the U.S. Commerce Department agency that is charged with enforcing export controls.
Those involved in the scheme allegedly helped a Southeast Asian company place orders for servers of Nvidia's Blackwell and Hopper chips, both of which are restricted for sale to China. In this manner, the Southeast Asian company moved about $2.5 billion of servers to China, according to the indictment.
Super Micro, which is not named as a defendant in the suit, "profited significantly from the sale of servers" to the Southeast Asian company that eventually repackaged them to ship to China, according to the lawsuit, which was filed in U.S. District Court for the Southern District of New York.
Federal prosecutors charged three men - Yih-Shyan "Wally" Liaw, Super Micro's co-founder and senior vice president of business development; Ruei-Tsang "Steven" Chang, a Super Micro sales manager in Taiwan; and Ting-Wei "Willy" Sun, a Super Micro contractor - with conspiracy to violate the Export Control Reform Act.
"The conduct by these individuals alleged in the indictment is a contravention of the company's policies and compliance controls, including efforts to circumvent applicable export control laws and regulations," Super Micro said in a statement Thursday following the indictment.
On Friday, the company said in a statement that Liaw had resigned from its board of directors.
Policy experts say the case highlights the ways in which the movement of advanced chips is a serious problem that the industry appears to have taken very unseriously.
"The idea that this is something they can handle, I think that has been proven wrong," Chris McGuire, a senior fellow at the Council on Foreign Relations, said of U.S. chipmakers' efforts to control movement of their wares to China.
As for Huang's comments about Nvidia's systems being hard to smuggle, McGuire noted that the company's technology is incredibly valuable - therefore making it "extremely worthwhile" for those looking to access the technology to develop a way to do so, especially when there's a lot of money involved. The Super Micro case is evidence of this, said McGuire, who served as senior director for technology and national security at the National Security Council during the Biden administration.
"This was a sustained operation that involved $2.5 billion worth of sales, tens of thousands of chips, dummy servers to throw off the scent of investigators, and multiple clients and shell companies in different countries," McGuire said.
"Super Micro's compliance regime, Nvidia's compliance regime - they all failed here," he added. "They failed to catch a $2.5 billion smuggling ring until the Department of Justice intervened."
Nvidia said in a statement shared with MarketWatch that "strict compliance is a top priority," and that it is working with its customers and the government to comply with changing export regulations.
"Unlawful diversion of controlled U.S. computers to China is a losing proposition across the board - Nvidia does not provide any service or support for such systems, and the enforcement mechanisms are rigorous and effective," the company said.
Policymakers have tried to stop the flow of advanced chips to China for years
Policymakers have been working for years to try to prevent China from getting access to advanced U.S.-made chips amid rising tensions between the countries.
Nvidia's advanced AI chips were placed under U.S. export controls by the Biden administration in October 2022, thereby restricting unlicensed sales to companies in China. The measures were put in place out of concern that the chips would be used to advance the country's technological and military capabilities.
Read on: How Nvidia's H20 chip found itself at the center of the U.S.-China trade war
In response, Nvidia has developed weaker versions of its chips to meet export-control requirements, thereby allowing it to sell to Chinese customers. After Nvidia's H20 chip was banned for sale to China last April, however, the chip maker found itself in a back-and-forth with the current Trump administration. The company now has permission to sell its more advanced H200 chips to some customers in China. While the H200 has been used by U.S. firms including OpenAI and Meta Platforms (META), it's no longer the most powerful chip that Nvidia sells.
The federal indictment makes clear that there's intense demand for U.S. chips among Chinese AI firms, Jack Burnham, a research analyst at the Foundation for Defense of Democracies, told MarketWatch in an interview.
"Multiple industry players over time, particularly Nvidia, have argued that smuggling or diffusion of AI technologies to China were tall tales," Burnham said. "When you have a senior executive in a major American firm allegedly participating in this type of behavior, I think it really calls into question what is the industry doing to police itself, and when the government may need to step in to take a stronger hand in preventing the diffusion of these technologies."
The alleged scheme is "probably the largest export-control violation ever in terms of dollar value," Erich Grunewald, a senior researcher at the Institute for AI Policy and Strategy, told MarketWatch in emailed comments.
Hanna Dohmen, a senior research analyst at Georgetown University's Center for Security and Emerging Technology, said such efforts demonstrate that enforcing export controls on chips and chip-manufacturing equipment should be a priority for the U.S. government.
"This also highlights limitations of the current export-control system," she added in emailed comments. "Verifying the end uses and end users of products sold by companies like Super Micro remains a challenge, and diversion through Southeast Asian intermediaries continues to be a recurring issue."
-Britney Nguyen -Hannah Pedone
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March 21, 2026 09:00 ET (13:00 GMT)
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