Alibaba Group Holding Limited (NYSE:BABA) and its peers, including Baidu, Inc (NASDAQ:BIDU), PDD Holdings Inc (NASDAQ:PDD), Bilibili Inc (NASDAQ:BILI) harboring artificial intelligence ambitions could face a rough ride as the U.S. government intensifies its semiconductor sanctions against China.

The Biden administration, facing resistance to its semiconductor restrictions on China, has informed allies that it is considering the strictest trade measures available if crucial providers of chipmaking machinery like Tokyo Electron Ltd and ASML Holding (NASDAQ:ASML) continue providing advanced semiconductor technology to China.

The U.S. is contemplating using the Foreign Direct Product Rule (FDPR), which allows it to impose controls on foreign-made products that incorporate even minimal amounts of American technology, Bloomberg reports.

The U.S. has presented this possibility to officials in Tokyo and The Hague. Additionally, the US is considering further sanctions on specific Chinese chip companies.

Earlier in 2024, Alibaba Co-founder and chairman Joe Tsai told SCMP that China lags two years behind the U.S. in the race for AI development, mainly due to Washington’s technology restrictions.

Tsai emphasized that U.S. export restrictions have significantly affected Alibaba’s cloud business and its ability to offer high-end computing services.

Alibaba and its peers are already bearing the brunt of China’s economy growing slower than anticipated in the second quarter. This growth is hindered by an ongoing property slump and job insecurity, which are slowing recovery efforts.

Price Actions: BABA shares traded lower by 0.09% at $78.31 premarket at the last check Wednesday. BIDU is up 0.04% at $93.77, PDD lower by 0.62% at $135.00.

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