That could end up as a structural headwind for Nvidia, which recently became a member of the $1 trillion club thanks to the artificial-intelligence frenzy. China’s chip-sector ambitions, and its own AI aspirants, will also suffer.

The Biden administration is considering steps to further curb exports of AI chips, like those made by Nvidia, to China. The U.S. already requires a license to sell the most high-end AI chips, like Nvidia’s A100, to customers in China. But the new restrictions would include Nvidia’s A800 chips, which were designed to defuse the impact of an earlier round of export controls instituted last August.

These latest restrictions may be meant in part to send a signal to U.S. companies to stop their cat-and-mouse game of trying to circumvent Washington’s export curbs.

A800 chips have the same computing power as A100 chips, widely used for AI computations, but have a lower bandwidth for communicating with other chips. The new rules may restrict the provision of cloud services too. Some Chinese AI companies may have leased high-end chips through such services to circumvent export controls.

Chinese software companies were indeed feeling the heat today: Alibaba and Tencent, for example, were both down over 1% on Wednesday in Hong Kong.

But the Biden administration also needs to strike a fine balance: Such restrictions will slow China’s AI effort, but may also hit revenue at U.S. chip companies.

Nvidia’s share price fell 4.3% in after hours trading on Tuesday on worries that the new measures could hurt earnings. But the stock clawed back some of those losses on Wednesday, after Chief Financial Officer Colette Kress told an investment conference that the company doesn’t anticipate any “immediate material impact” from new restrictions, due to booming global demand for its AI chips.

Still, Kress warned that the escalating chip war between the two countries could result “in a permanent loss of opportunities for the U.S. industry to compete and lead in one of the world’s largest markets.” That, he said, could still impact Nvidia’s future business. The company’s A800 chips have been very popular with Chinese companies, according to Jefferies. Chinese companies, like American ones, have been ramping up their offerings of generative AIs. The lower bandwidth of the A800 doesn’t hurt the development of text-based AI models as much, though it can make a real difference in images, says the bank.

Chinese companies may have also been stockpiling chips in expectation of tighter restrictions. Citi estimates China may account for around 5% to 10% of Nvidia’s data-center sales. How much Nvidia will be affected will depend on whether Chinese customers just buy new, slower chips developed by the company as replacements—or whether the compromise in performance becomes a hindrance.

Chinese chip stocks, on the other hand, surged Wednesday. AI chip maker Cambricon Technologies rose 3.2%, while graphic-chip maker Changsha Jingjia Microelectronics gained 4.8%. They should benefit from China’s drive to make chips domestically.

It will be challenging to catch up given how all-encompassing U.S. chip restrictions have become—ranging from equipment to talent. But Beijing will keep trying given that it now clearly views “chip sovereignty” as a matter of national economic survival.

This probably won’t be the last time investors in Nvidia, AMD and other U.S. chip darlings wake up to unpleasant news related to China.