A smartphone with an AMD logo displayed is placed on top of a computer motherboard in this illustration taken on March 6, 2023.

Dado Ruvic | Reuters

American semiconductor company Advanced Micro Devices failed to get a China-made AI chip passed US regulators and will have to apply for an export license, Bloomberg reported on Tuesday.

The report said AMD designed the chip to have lower performance than its premium products to comply with US export restrictions. But Bloomberg reported that the Commerce Department has not approved the chip for sale in China because it is still too advanced.

AMD will now have to obtain a license from the department’s Bureau of Industry and Security, the report said.

It is unclear whether the company will apply for a license. AMD and the Bureau of Industry and Commerce Security did not immediately respond to CNBC’s requests for comment.

While the U.S. has restricted sales of products containing the nation’s most advanced semiconductor technology to China, citing national security concerns, U.S. companies continue to sell mature or less advanced technologies to the massive market without licenses.

AMD’s products include chips that can be used to develop and train AI models – something US officials have warned Beijing could use to gain a military advantage.

In 2022, US President Joe Biden’s administration unveiled an initial set of export controls to limit China’s access to advanced semiconductor technology. Leading AI chip company Nvidia subsequently said it would sell delayed versions of its premium AI chips that comply with US restrictions.

However, these chips were also banned in October when the US expanded the restrictions to include more technologies and target chips that were seen as circumventing controls.

Nvidia has since redesigned the products to be less powerful for the Chinese market to comply with the 2023 restrictions.

Ahead of the October restrictions, Nvidia warned that further curbs on US chip exports to China would risk “permanent loss” for US semiconductor firms to lead in one of the world’s biggest markets.

In Nvidia’s November earnings call, Chief Financial Officer Colette Kress said China and other regions targeted by US export controls have consistently contributed roughly 20% to 25% of data center revenue over the past few quarters. While Nvidia reported hit results for the fourth quarter, Kress noted on the February earnings call that data center revenue from China was down significantly after the U.S. curbed exports.

Compared to Nvidia, AMD had a smaller position in the Chinese AI chip market before the trade restrictions. But the company has begun to target the AI ​​chip market more aggressively, launching a new MI300 product line that is seen as a challenge to Nvidia’s GPU products.

It’s unclear which Chinese customers AMD designed the chips for. Some leading Chinese tech giants, such as Tencent, have reportedly amassed enough advanced chips from Nvidia to train their AI chatbots’ capabilities to “at least a few more generations.”

Meanwhile, US-sanctioned Huawei is reportedly developing its own chips and chip-making tools, along with other domestic firms, as Chinese companies try to fill the gap created by US restrictions.

Despite limited sales in China, shares of both Nvidia and AMD soared amid the AI ​​frenzy. Nvidia is up more than 250% over the past year, while AMD is up more than 150%.

Read the full report from Bloomberg.