By Jurica Dujmovic
Nvidia finds itself caught between its competition and the Trump administration
Given the pace of improvement and the resources being deployed, it appears only a matter of time before Chinese chip makers close the efficiency gap and match Nvidia’s performance.
The irony is stark: This competitive threat is largely the unintended consequence of U.S. export controls designed to slow China’s AI development. But instead of preventing Chinese advancement, the restrictions actually may have accelerated the emergence of Nvidia’s most formidable future rival.
More ominously for Nvidia (NVDA), the gap is closing fast. In June, Huawei achieved a remarkable milestone that sent shockwaves through the semiconductor industry: A cluster of its 384 Ascend 910C chips outperformed Nvidia’s H800 chips, and even matched the performance of a full H100 system when running a 671-billion-parameter AI model (DeepSeek’s R1).
The breakthrough represents a pivotal moment in the global AI chip race. While Huawei’s solution came at the cost of using four times more power than Nvidia’s equivalent system, it proved that Chinese firms can match or exceed Nvidia’s performance when allowed to deploy more hardware. At the individual chip level, Huawei still lags – the 910C delivers only about 60% of an H100’s performance – but the cluster results demonstrate that China’s “brute force” approach can overcome single-chip limitations.
How export controls backfired
The path to this paradox began with Washington’s efforts to cut off Chinese access to advanced semiconductors. Over the past several years, Nvidia rolled out China-specific, reduced-performance versions of its Hopper GPUs, the A800 and H800. This was done in response to U.S. export restrictions announced in late 2022.
When Washington tightened those controls again in late 2023, Nvidia developed the H20. This further pared-down Hopper variant launched in 2024 to comply with the updated thresholds. Chinese tech giants like Alibaba (BABA) (HK:9988) and Tencent (TCEHY) (HK:700) eagerly ordered $16 billion worth of H20 chips for their AI cloud services in the first quarter of 2025 alone.
But the policy whiplash that followed created the perfect conditions for Chinese competitors to flourish. In April 2025, U.S. officials abruptly informed Nvidia that the H20 now required a special export license, effectively banning it. Chief Executive Jensen Huang lamented that the move “ended our Hopper data-center business in China,” leaving the chip maker suddenly cut off from the “$50 billion China market.”
Then, just three months later, Washington executed a dramatic about-face. After the U.S. government unexpectedly eased restrictions in mid-July, Nvidia announced it was preparing to resume H20 sales to China and had been assured by the U.S. it would get the licenses soon. The policy shift was tied to broader trade negotiations: Washington agreed to grant export licenses for the H20 and similar chips in exchange for China restarting rare-earth exports to the U.S.
The policy reversal quickly gained momentum through late July and early August. Nvidia moved aggressively to meet anticipated demand, placing orders for 300,000 additional H20 GPUs with TSMC (TSM) (TW:2330) on July 29 to supplement its existing stockpile of 600,000 to 700,000 chips. In early August, U.S. officials began issuing export licenses for H20 sales, allowing the chip maker to resume shipments after months of uncertainty.
However, the deal came with strings attached. By Aug. 10, Nvidia, along with AMD (AMD), reportedly had agreed to send 15% of its China-derived AI chip revenue to the U.S. government as part of the arrangement.
This regulatory uncertainty – the constant threat that access to advanced chips could be cut off at any moment, combined with the fact that available chips were dumbed-down versions of what was sold in the West – gave Chinese companies exactly the incentive and government support needed to accelerate their own development.
As Huang predicted in May, when he called export controls “a failure,” the restrictions created a scenario where China was forced to become self-sufficient.
Race against time
While Nvidia was playing compliance games and navigating policy ping-pong, the broader Chinese tech ecosystem was rapidly embracing domestic alternatives. Baidu (BIDU) (HK:9888), ByteDance, Tencent and iFlytek (CN:002230) have all trialed or deployed Huawei’s Ascend 910C accelerators, with some reportedly achieving “performance parity in specific workloads” compared to Nvidia’s H100. The Chinese government is backing this transition with a $140 billion national tech fund, transforming what was once a fragmented market dependent on Western chips into a coordinated push for technological independence.
The momentum toward domestic alternatives has accelerated dramatically since late July. ByteDance has reportedly placed major orders for Chinese AI chips including Huawei’s Ascend processors, while even Ant Group has begun piloting Huawei chips for training advanced models. Most tellingly, Nvidia’s market share in China has plunged to 50% as of mid-2025, from 95% previously – a stark indicator of how quickly the competitive landscape is shifting.
Rocks and hard places
Meanwhile, Nvidia finds itself caught between U.S. regulatory compliance and its competition. Faced with this policy volatility, the company will likely pursue a hedging strategy. Even as H20 sales may resume, the company seems likely to press ahead with yet another reduced-capability chip – the “B20,” an unofficial designation for what sources describe as a scaled-down B200 variant, and the first Blackwell-based chip purpose-built for compliance with U.S. policymakers’ rules. In essence, the B20 sacrifices raw performance for regulatory certainty – a Blackwell chip in name, but closer to an entry-level accelerator under the hood.
The B20 exemplifies a troubling pattern: Nvidia’s strategy of continually creating weaker chips may be accelerating its own obsolescence. Each downgraded chip essentially becomes a benchmark for Chinese competitors to surpass, while regulatory uncertainty provides the political justification Beijing needs to invest heavily in domestic alternatives.
Beijing’s response to the H20’s return has been notably hostile, suggesting the window for Nvidia may be closing faster than expected. In late July, China’s Cyberspace Administration summoned Nvidia over alleged security concerns, while state media outlets launched a coordinated campaign questioning the H20’s safety and urging Chinese consumers to avoid the chips.
Fundamental shift
This creates a fundamentally different competitive landscape than existed just months ago. Nvidia is no longer simply managing export compliance – it’s racing against the clock before Chinese alternatives eliminate its technological moat entirely.
Even if all policy restrictions disappeared tomorrow, the company would face entrenched local competitors with improving performance, government backing and a strong motivation to achieve technological independence. Chinese firms now have the infrastructure, talent and financial resources to compete directly with many of the Nvidia’s flagship products.
With Chinese firms rapidly scaling domestic chip deployments and Huawei’s developer ecosystem growing nearly tenfold in recent years, the efficiency gap with Nvidia could close within just one or two chip generations. What was once thought to be a distant competitive threat now appears to be materializing within the next one to two years – making Nvidia’s race against time more urgent than ever.
The ultimate paradox of Washington’s export-control strategy is now clear. In trying to slow China’s AI development, it may have accelerated the emergence of Nvidia’s greatest future rival. And judging by recent developments, that future is arriving faster than anyone expected.
Also read: Nvidia and AMD said to strike unprecedented deal with White House for China access
-Jurica Dujmovic
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08-11-25 1653ET
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