Nvidia's set to regain some China access. But it still faces eroding AI chip market share

CNBC

2 days ago

Nvidia's H20 chips are likely to return to China, but tech experts don't expect them to be met with the same fanfare in the market in light of new competition and regulatory scrutiny.
The Trump administration last month gave Nvidia assurances that it would be permitted to resume sales of its H20 chips to China, after their exports had been effectively banned in April. It also announced a new "fully compliant" made-for-China chip.
The move was seen as a huge win for the company, which had flagged billions in losses due to the policy. But while the H20s might be returning to the Chinese market that doesn't mean Nvidia will regain its former market share, analysts caution.
In a recent report, global equity research and brokerage firm Bernstein forecast that Nvidia's AI chip market share in China would drop to 54% in 2025, from 66% the year prior.
This drop is only partly owed to complications with resuming chip supply, as Chinese AI chipmakers have been seizing more of the booming domestic market.
"U.S. export controls have created a unique opportunity for domestic AI processor vendors, as they are not competing with the most advanced global alternatives," Bernstein's report said, noting growing prominence of Chinese players such as Huawei, Cambricon and Hygon. "The localization ratio of China's AI chip market will surge from 17% in 2023 to 55% by 2027."
Other analysts such as The Futurum Group CEO Daniel Newman were more bullish about Nvidia's bounce back in China. However, he also flagged potential market share erosion from Nvidia customers that might have found success with Chinese rivals while the H20 controls were in place.
It's also worth noting that Bernstein's predictions assume that broader U.S. chip restrictions will remain largely unchanged. That creates a dynamic where Chinese companies continue to develop and offer advanced chips, possibly eroding demand for outdated U.S. offerings.
Ahead of rolling back the H20 restrictions, Nvidia CEO Jensen Huang had been lobbying for more access to China, claiming export controls were inhibiting U.S. tech leadership.
While Trump administration officials had said the rollback was part of trade negotiations, analysts have echoed Nvidia's basic argument that chip controls for the China market should be eased, thereby creating more dependency on U.S. tech offerings.
"The assumption is that by keeping U.S. technology companies in the China game, the U.S. can preserve and even grow its geopolitical leverage," Reva Goujon, director at Rhodium Group, told CNBC.
In a report last month, Rhodium Group said that this logic may see the administration shift to a "sliding scale" approach to export restrictions that could allow U.S. chipmakers greater access to China as Huawei and other Chinese chipmakers continue to upgrade.
However, while Chinese AI developers will be happy to have increased access to Nvidia chips, Beijing isn't expected to slow its efforts to steer companies toward homegrown AI infrastructure, according to Goujon.
She noted that the Cyberspace Administration of China's recent summons to Nvidia was an obvious signal of the state's intention to intervene in the local AI infrastructure market.
According to the Cyberspace Administration of China, Nvidia met with Beijing officials on Thursday regarding national security concerns posed by the H20 chips, including potential backdoors that would allow parties in the U.S. to access or control them.
Beijing's move appeared to come in response, at least partially, to new laws proposed in the U.S. that would require semiconductor companies such as Nvidia to include security mechanisms and location verification in their advanced AI chips. Nvidia later denied that its chips have any "backdoors" that would allow external access or control.
The move by Beijing was also likely an attempt to create some hesitation among Chinese AI developers looking to buy the new H20s, according to Futurum's Newman.
"China wants to leave some levers in place to potentially restrict outside AI chips at some point down the line if and when it feels its homegrown technology is truly competitive," Newman said.
Beijing has previously restricted American chipmakers' business in China amid periods of intense technology and trade tensions between the two countries. Micron Technology, for instance, failed a cybersecurity review in 2023 and was subsequently blocked from critical IT infrastructure.
"The continued complexity of China-U.S. trade relations could bring further complications [for Nvidia] as negotiations continue and as China attempts to cement its own AI strategy," Newman added.