Breakingviews - China's Nvidia pushback is only just beginning
Nvidia's lucrative ties with the world's biggest importer of semiconductors have been upended by the trade war, geopolitics and the broader U.S-China rivalry in artificial intelligence. In April, U.S. President Donald Trump effectively banned the company from selling its China-specific H20 AI processor. That decision, which Huang said, opens new tab at the time would result in a $5.5 billion inventory writedown and $15 billion of lost revenue, was soon reversed as part of U.S. concessions to Beijing in exchange for continued supplies of rare earths.
That's a huge relief to Nvidia. Sales in China are forecast to surge 185% to roughly $49 billion in the fiscal year to January, per Visible Alpha, and account for nearly a quarter of total revenue. Even that may be conservative: Trump on Monday said he was open to Nvidia selling a scaled-back version of its most advanced Blackwell chip to China.
But the outlook is darkening once again. Washington's July "AI Action Plan" called, opens new tab for, among other things, stricter enforcement of export controls including "new and existing location verification features". That prompted China's cyberspace watchdog to summon Nvidia to a meeting. Last week, the U.S. company published, opens new tab a blog post in both English and Chinese reiterating that its chips did not have so-called backdoors, kill switches and spyware.
Those assurances have not been enough. A couple of weeks ago the state-owned People's Daily published an opinion piece titled, "Nvidia, how can I trust you?"; that was followed on Sunday by another commentary elsewhere which criticised the H20 as a threat to security, technologically not that advanced and environmentally unfriendly. Worryingly, it concluded that China "certainly had the option not to buy it".
It's likely the intended audience is the country's technology giants. Those include Tencent and TikTok-parent ByteDance, which are in the process of submitting applications for H20 chips, Reuters reported last month, citing people familiar with the matter. But Beijing is keen to wean the country off foreign technology and have them buy domestic offerings instead. Moreover, Trump's latest 15% revenue collection deal will result in national champions indirectly handing money to the U.S. government; that will not sit well with President Xi Jinping.
The problem is, domestic AI chips from Huawei, Cambricon Technologies (688256.SS), opens new tab and others still have a long way to catch up to Nvidia's. And Huang has another formidable edge: its programming platform, CUDA, hosts many apps, frameworks and AI software that have become the industry's standard, making it hard and costly for customers to leave. Chinese unease toward Nvidia will only rise, but the country does not have much choice for now.
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