What Nvidia's Megaspeed Scandal Is Really All About

NVIDIA

Across the shows: 113 speakers in other episodes, 98 bullish and 68 bearish calls, past 30 days

• Mackenzie Hawkins · Bloomberg NewsUncertain

  Nvidia's self-policing of chip buyers is caught in a catch-22 as its credibility on diversion erodes.

  Nvidia has started to self-regulate through an informal 'top tier' list of NVIDIA Cloud Partners that it markets to the industry as approved. Megaspeed became one of these partners four days after it was incorporated in Singapore and is still on the list, and another partner's CEO is on trial in Singapore for allegedly defrauding suppliers about where hardware was going. After the Super Micro cofounder's indictment, Nvidia removed many companies from its internal pre-approved purchase list. Hawkins says this is the due diligence Washington may want, but it raises questions about why those companies were approved in the first place. Tracy Alloway adds that Nvidia has lost so much credibility on the issue that the situation is a catch-22. Hawkins does not absolve Nvidia of responsibility, but frames the political position it is in.

  “NVIDIA went and cleaved a lot of companies from that white list. And it's this interesting thing because on the one hand, this is the type of due diligence maybe that some Washington regulators would like to see the chipmaker take.”at 27:21

• Mackenzie Hawkins · Bloomberg NewsBearish

  Restricting remote access would be a nightmare for Nvidia, whose Southeast Asia demand relies on Chinese offtake.

  Nvidia chips fill many Southeast Asian data centers that, in many cases, would not exist without offtake demand from Chinese companies. Chinese firms reach that compute through legal remote access. Hawkins calls restricting remote access a nightmare scenario for Nvidia. It would hit a business line that depends on Chinese customers, and it would also cut into Nvidia's argument that it needs to sell freely into China to compete with Huawei. Commerce's enforcement unit is mapping remote access, and Capitol Hill is pushing for tougher rules. Hawkins presents this as a risk, not a forecast of a restriction.

  “It's... You know, this is sort of nightmare scenario for NVIDIA if if remote access were to be restricted.”at 35:23

Megaspeed

• Mackenzie Hawkins · Bloomberg NewsBearish

  Megaspeed's data center footprint has unexplained inconsistencies, with about 50,000 chips unaccounted for; no proof of smuggling yet.

  Bloomberg found no concrete evidence that Megaspeed smuggled GPUs to China, but found an extraordinary number of inconsistencies in its data center footprint that neither the company nor Nvidia has explained. Nvidia tallied chips across 12 data centers owned by eight companies in three countries and said everything shipped was where it should be. Comparing that count with Malaysian and Indonesian trade records implied about 50,000 chips unaccounted for, mostly Blackwell. Nvidia then said it found them in warehouses, and later said it had identified 'substantially all' chips without confirming numbers. Megaspeed's largest data center dropped it as a tenant after the probe became public, and two other operators contradicted Nvidia's account on the record. Megaspeed's 2024 investor deck showed five data centers, while its website listed three, and it used a rendering of a Shanghai project to represent a Southeast Asian facility. Companies with longtime ties to Alice Huang were investors in that Shanghai data center. Megaspeed's shareholding runs through a BVI shell, so its ownership is also questioned.

  “In our reporting, we didn't find concrete evidence that Mega Speed had smuggled any GPUs to China. We found an extraordinary number of inconsistencies in their data center footprint, that neither the company nor NVIDIA have been able to explain.”at 11:09

Super Micro Computer

Across the shows: 2 speakers in other episodes, 1 bullish and 1 bearish calls, past 30 days

• Mackenzie Hawkins · Bloomberg NewsBearish

  Super Micro audited a Thai buyer yet kept shipping, showing weak due diligence on diversion risk.

  According to the US indictment of Super Micro's cofounder, about $2.5 billion of hardware was sold to an unnamed Southeast Asian intermediary, which allegedly smuggled most of it to China. Reporting identifies that intermediary as a major AI company in Thailand, which allegedly never had data centers to install the hardware. Super Micro did visit and audit the Thai company because its purchase volumes were so large. But it then allowed the shipments to continue multiple times. Hawkins argues the real question is whether the red flags were obvious enough that any competent due diligence program should have caught them.

  “Supermicro did check according to The US indictment. They visited, they audited because the volumes that this Thai company was purchasing were so significant. They audited, but then they allowed the shipments to continue multiple times.”at 25:27

Oracle

Across the shows: 37 speakers in other episodes, 11 bullish and 36 bearish calls, past 30 days

• Mackenzie Hawkins · Bloomberg NewsBearish

  Remote-access curbs would hurt Oracle, which counts Chinese offtakers as a significant part of its business.

  Hawkins says that restricting remote access to Nvidia compute would be a nightmare scenario for some hyperscalers, such as Oracle. Oracle counts Chinese offtakers as a significant portion of its business. She cites recent Financial Times reporting on an Oracle cloud arrangement with Tencent, which the Trump administration then reportedly scrutinized. Her point is that Oracle's China-linked revenue is exposed to the same policy risk as Nvidia's Southeast Asia business.

  “It's also a nightmare scenario for some hyperscalers like Oracle that that counts, you know, Chinese off takers as a significant portion of its business.”at 35:23

Huawei Technologies Co.

• Mackenzie Hawkins · Bloomberg NewsNeutral

  Huawei has made real chip progress, but its volumes remain tiny and production-constrained versus Nvidia.

  Hawkins says Huawei is the preeminent Nvidia rival in China and has made material progress on its AI chips over the past couple of years. Chinese companies are showing more interest in Huawei hardware, and model releases now include zero-day inference support on Huawei chips. Production capacity is the binding constraint, partly because US and allied restrictions limit chipmaking equipment flowing into China. DeepSeek's large Huawei order, which Huawei cannot fulfil for over a year, and Huawei's capacity in the low hundreds of thousands show its volumes are orders of magnitude below Nvidia's global shipments. Pretraining frontier models on Huawei chips is still unproven.

  “But Huawei has made material progress on its chips over the past couple of years.”at 44:53

US–China AI & chip race

• Mackenzie Hawkins · Bloomberg News

  Southeast Asian data centers are the backbone of Chinese compute access, and such rentals are extraordinarily common.

  Megaspeed's arrangement to supply compute to Alibaba is extraordinarily common across the Southeast Asian data center ecosystem. Hawkins says that in some ways the backbone of Chinese compute is Johor, Malaysia. That is why the US investigation focused less on remote rentals, which are legal, and more on whether Megaspeed diverted physical hardware into mainland China. The point is that Chinese AI firms' access to Nvidia compute runs largely through Southeast Asian facilities.

  “the arrangement that Megaspeed has with Alibaba is extraordinarily common across the Southeast Asian data center ecosystem. In some ways, the backbone of Chinese compute is, like, Johor, Malaysia.”at 7:08

• Mackenzie Hawkins · Bloomberg News

  US has only about a dozen export-control officers overseas, though it plans to more than double them to 25.

  The US government has limited enforcement capacity overseas. It has a handful of export control officers, including in Southeast Asia, which Hawkins says is really only about a dozen. The government plans to more than double that to 25 this year. She describes the current capacity as thin, which is part of why it is hard to verify where chips end up. The forecast is the planned headcount, not a claim about outcomes.

  “the US government has a handful of export control officers overseas, including in Southeast Asia. And when I say a handful, it's really a handful. It's like a dozen. They're gonna more than double the number this year to 25.”at 8:41

• Mackenzie Hawkins · Bloomberg News

  Chip smuggling is a sophisticated, sprawling black market with contracts, brokers and false customs declarations.

  Most Nvidia chips reach customers through official allocation, but there is also a secondary market. Nvidia sells to server makers such as Super Micro, Dell or HP, which sell to distributors, and the chips often pass through several intermediaries before reaching a data center. In indictments, orders list a destination outside China while the intent was to divert the chips to China from the start. Prosecutors allege some data centers never existed. Customs filings have described restricted Nvidia hardware as 'adapter modules', including one shipment weighing 2,000 pounds, and one person has already pleaded guilty. Brokers solicit hardware on behalf of suppliers under contracts, and scammers pose as legitimate brokers. Hawkins describes a sophisticated and sprawling ecosystem.

  “There are lots of colorful characters in broker markets. It's actually a very sophisticated black market. There are contracts. You know, brokers go and solicit hardware on behalf of specific suppliers.”at 14:56

• Mackenzie Hawkins · Bloomberg News

  Renting Nvidia compute to Chinese firms via remote access is legal in most cases; Washington could change that.

  Companies can legally rent Nvidia hardware in Southeast Asia to Chinese companies, which can buy the same chips themselves, and this is legal in the vast majority of cases. Hawkins calls this a policy choice, not a violation. The Biden administration restricted it in the AI diffusion rule, set to take effect in May 2025, but the Trump administration is not enforcing that rule. The Commerce Department's enforcement unit started mapping where remote access happens, and senior officials are debating restrictions. Capitol Hill is also interested in tougher remote-access rules. Hawkins describes this as an active, raging debate in Washington.

  “companies completely legally renting the use of NVIDIA hardware that Chinese companies can purchase themselves to those Chinese companies... It's legal. The US has the ability to make it illegal, and it's legal in the vast majority of cases.”at 28:56

• Mackenzie Hawkins · Bloomberg News

  Export-control curbs will be fought over in the defense bill, and Democrats' Congress will bring more oversight.

  China hawks in Congress are frustrated with what they see as the Commerce Department's Bureau of Industry and Security (BIS) under the Trump administration. They want to lock in restrictions, for example on semiconductor equipment shipments and on the executive branch's authority to restrict Chinese cloud compute access. Hawkins expects many of these measures to be litigated over the next couple of months in the annual must-pass defense package. Democrats taking Congress next year would bring significant oversight of Nvidia and the other major players in the AI chip ecosystem.

  “Democrats are taking congress next year. I would expect a significant amount of oversight into not just NVIDIA, but, you know, the major players in the ecosystem.”at 51:04

• Mackenzie Hawkins · Bloomberg News

  Southeast Asia's fast-growing AI build-out faces chip-access uncertainty from erratic US export rules.

  Southeast Asia is one of the fastest-growing AI infrastructure regions, with many companies investing there, though it has far less compute than the US. US policy has whiplashed. The AI diffusion rule, which would have required licences to ship chips to Singapore, Malaysia, Thailand and Indonesia, was not enforced. Draft replacement rules were scrapped or withdrawn after diplomatic pressure from Malaysia. Some suspected smugglers ramped up shipments before the restrictions were due to take effect. Even companies building legally cannot be sure they will get chips. Hawkins says the US is a bit of a boy who cried wolf, and that Asian banks' willingness to finance deals with Chinese offtakers ebbs and flows.

  “companies that are trying to build infrastructure in this region, even the ones that are doing it completely legally, it's like, are we going to be able to get the chips? It's this constant sort of the US government's a little bit the boy who cried wolf on this issue.”at 52:21