Nvidia’s Weak Spot: Unpacking the Impact on Economy and Politics

Nvidia’s Struggle with the Chinese Market

Even the giant Nvidia has a weak spot: China.
The most advanced AI chip developed by the US giant for the Chinese market faced a slow start, with abundant supply pushing its price below that of a competitor chip from Chinese tech giant Huawei, according to reports from Reuters.

Pricing Challenges and Competition

The pricing pressure highlights the challenges Nvidia’s Chinese business is encountering due to US sanctions on AI chip exports and increased competition, casting a shadow over its future in a market that contributed 17% to its revenues for fiscal year 2024.

Nvidia, a dominant force in the AI semiconductor market, introduced three custom chips for China last year after US sanctions prevented the export of its most advanced semiconductors.
Among these chips, the H20, Nvidia’s most powerful product sold in China, is facing abundant supply and weak demand, leading to price discounts.

Reports suggest that the H20 chips have been sold at over a 10% discount compared to Huawei’s Ascend 910B – the most powerful AI chip from a Chinese company.
Analysts argue that while Nvidia is striving to gain market share it cannot afford to lose, the outlook remains uncertain.

Market Dynamics and Future Prospects

According to a report by Chinese market research company CCID Consulting, China’s global share in the AI sector is projected to exceed 30% by 2035.
Analysts underline the delicate position Nvidia finds itself in, trying to balance the Chinese market while managing tensions with the United States.

“Nvidia is walking a tightrope, trying to maintain its presence in China while handling US-China tensions,” stated Hebe Chen, market analyst at IG.
“Nvidia is definitely bracing for long-term challenges.”

Notably, CFO Colette Kress highlighted in the quarterly presentation that “revenues from our data centers in China have significantly decreased compared to pre-imposition of new export control restrictions in October…
We expect the Chinese market to remain highly competitive in the future.”

US-China Tech Warfare

Nvidia’s H800 and A800 chips are banned in China due to US sanctions aimed at limiting China’s tech capabilities.
Additionally, other advanced product lines such as H100 and B100 are also prohibited.

Another hurdle for Nvidia’s H20 chip success in China has been Beijing’s directive for companies to purchase Chinese chips, although reports suggest a decrease in such orders in recent months.
In this scenario, Huawei has emerged as a challenger to Nvidia, with rumors indicating a substantial increase in shipments of its Ascend 910B chip this year.