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Nvidia CEO Jensen Huang at a news conference in Taipei last month. Photo: i-hwa cheng/Agence France-Presse/Getty Images
Given all the trouble Nvidia NVDA -2.92%decrease; red down pointing triangle has selling its artificial-intelligence chips in China, one might wonder why the company even bothers trying anymore.
The answer is: It can’t really afford not to.
Nvidia used its fiscal first-quarter report last week to send a rather stark message to the Trump administration about the dangers of shutting American chip companies out of the Chinese artificial-intelligence market. “China’s AI moves on with or without U.S. chips,” Nvidia Chief Executive Jensen Huang said on the company’s conference call. Making the point that half the world’s AI developers are in China, Huang argued that preventing U.S. companies from competing there could ultimately cost America its leading position in the global AI industry.
“In the end, the platform that wins the AI developers wins AI,” Huang said. “Export controls should strengthen U.S. platforms, not drive half of the world’s AI talent to rivals.”
Nvidia also has powerful financial reasons to make that argument. The U.S. government’s decision in April to stop the company from selling its H20 chips to the Chinese market cost the company about $2.5 billion in lost sales in the April-ended quarter and will cost another $8 billion in the current period ending in July. That is because the H20 chip was designed specifically for the Chinese market to comply with then-current export restrictions, so it isn’t really salable anywhere else.
Demand for Nvidia’s AI chips is still booming in the rest of the world, so the lost China sales don’t hurt much in the near term. But Nvidia is now valued at around $3.3 trillion—triple the market cap of the next-largest chip company—precisely because investors think it still has a long runway of significant growth ahead. Wall Street analysts expect Nvidia’s annual revenue to cross the $200 billion mark this year and hit $300 billion by 2028, according to consensus estimates from FactSet.
That is unlikely to happen without China. The world’s second-largest economy is pursuing AI development with a passion. Venture funds backed by the Chinese government invested $184 billion into AI startups between 2000 and 2023, according to a Morgan Stanley report last month. Nvidia estimates the total addressable market in China for AI accelerators—the primary chips used in artificial-intelligence computing—to be around $50 billion.
“China is a quarter of the market. It’s a big number,” UBS analyst Tim Arcuri said in an interview. He added that Nvidia would have a “dominant hold” on that market if it were able to compete there.
Wall Street analysts haven’t given up on Nvidia getting back into the Chinese AI market. “We remain convinced that there will be at least some recovery of the China opportunity,” Joe Moore of Morgan Stanley wrote following Nvidia’s latest earnings report.
But a change at this point would require the Trump administration to either backtrack or seriously modify current rules that place sharp limits on the computing ability of chips sold into China. And that seems unlikely—at least given the most recent developments. On Friday for instance, President Trump accused China of violating its recent trade deal with the U.S., threatening a rebound in tensions.
Arcuri of UBS thinks modifications that allow more powerful chips to be sold could still comport with the administration’s aims, since restrictions on advanced chipmaking gear still limit China’s abilities to actually produce the most advanced processors. “If those equipment restrictions don’t change, there is this inherent ceiling to what they [China] can do,” Arcuri said.
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Nvidia’s absence from the Chinese AI market is giving local competitors such as Huawei a leg up. Morgan Stanley estimates that China is able to supply about 34% of its AI chip needs now with local suppliers, with that “self-sufficiency ratio” reaching 82% in 2027. And if Nvidia does make it back into the market, it will still have to contend with the Chinese government’s ambitions to have homegrown tech at the heart of all its key industries.
Nvidia is considered years ahead of any of its rivals now. And its growing ecosystem of chips, full systems and software tools for AI developers would still be a major draw for Chinese companies looking to stay competitive in AI globally. Nvidia needs to get back into China. But the road there runs straight through the White House.
Write to Dan Gallagher at [email protected]
