Alphabet (GOOGL, Financials) and OpenAI are drawing fresh attention in Washington after a report said their advanced AI services were used by overseas affiliates of several Chinese technology companies.
The services were provided to Singapore-based units connected to Alibaba, Baidu and Tencent. Their parent companies appear on the Pentagon's 1260H list, which identifies businesses the U.S. alleges have ties to China's military.
The sales are currently legal because U.S. rules do not broadly block Chinese-owned companies from accessing advanced AI models outside mainland China.
Still, the situation highlights a growing challenge for American AI companies. Policymakers are trying to limit China's access to sensitive technology, while cloud-based AI models can be harder to control than physical chips.
OpenAI recently suspended API access for Alibaba-linked users after raising concerns about possible model distillation. The company also reported the activity to the U.S. government.
Google said geographic restrictions alone may not stop sophisticated users from working around controls.
Investors will now watch whether Washington moves toward tighter export rules for advanced AI software, which could affect how U.S. technology companies serve international customers.