The Federal Communications Commission is drafting a ban on imports of some Chinese data center components to protect US data center infrastructure, Reuters reported.

The proposed ban aims to prevent Chinese firms from installing malware or stealing data from the data centers that are critical to the artificial intelligence boom, Reuters said, citing people familiar with the plans who it didn’t identify. It would include imports of new models of optical transceivers, which help data travel through fiber optic cables inside data centers, it said.

Large US tech firms, including Alphabet Inc. and Amazon.com Inc., rely on the parts for high-speed connections among semiconductors called graphics processing units, or GPUs, that can run and train AI programs. Demand for components that make up data centers is surging as the companies spend hundreds of billions of dollars in a race to build out critical AI infrastructure to meet computing demand.

China’s Zhongji Innolight Co., one of the world’s largest transceiver suppliers, is likely to be hit by the ban, Reuters said. The company didn’t respond to Reuters’s requests for comment. Innolight was added to the Pentagon’s list of Chinese military-linked businesses this year, which the company has denied. Eoptolink Technology Inc., based in Chengdu, also makes optical transceiver technology that’s sold globally.

Shares of optical equipment makers outside China rallied, with Applied Optoelectronics Inc. rising nearly 20% and Coherent Corp. surging more than 16% in Tuesday trading. Nokia Oyj, which makes optical transceivers that compete with Chinese models, rose as much as 7.7%, while Ciena Corp. jumped 9.3% and Cisco Systems Inc. climbed 5%.

Bloomberg Intelligence analyst Woo Jin Ho wrote in a note Tuesday that Ciena, Cisco and Nokia could be “indirect beneficiaries” if the Trump administration follows through. “The proposed restrictions would affect connections inside data centers, where the three companies have limited exposure relative to their positions in data-center interconnect, metro and long-haul networks,” he wrote.

President Donald Trump’s administration has been cracking down on technology flowing to and from China, stopping US and European tech companies from sending their most advanced equipment to China and blocking US companies from using some imported parts. The two countries are locked in a race to develop and deploy advanced artificial intelligence, with China releasing a flurry of new AI models in the last few weeks that threaten less advanced American technology.

Under Chairman Brendan Carr, the FCC has stepped up its efforts to restrict the flow of critical technology components from China, citing risks to US national security. In March, the agency put limits on foreign-made Wi-Fi routers, and last month it imposed curbs on drones produced overseas. Both markets are dominated by Chinese manufacturers.

The Chinese embassy in Washington said it urged the US to “heed the objective and rational voices of the business communities in both countries” and “stop smearing Chinese companies and threatening them with ⁠sanctions,” when contacted by Reuters. The White House and FCC didn’t respond to the news agency’s requests for comments.

Written by: Amy Thomson — With assistance from Paula Doenecke, Subrat Patnaik, Henry Ren, and Michael Shepard @Bloomberg

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