Nvidia Chips Flow to China, But With Strings Attached

The US government has authorized Nvidia to sell its H200 AI accelerator chips to China, a significant shift after months of lobbying by CEO Jensen Huang. This decision allows American companies to re-enter China's lucrative chip market, which accounts for a substantial portion of global chip revenue. Huang argued that export controls not only hurt US businesses but also incentivize China to build an independent AI ecosystem, potentially challenging US dominance.

Despite the authorization, the situation remains delicate. Washington could quickly reinstate export bans if China misuses the chips for military applications. Beijing also faces pressure to balance its need for advanced foreign hardware to advance its AI ambitions with its goal of semiconductor self-sufficiency. China's strategy includes requiring domestic chip purchases alongside any US imports, aiming to bolster its own manufacturers.

While the H200 represents a significant leap in AI capabilities, it is not Nvidia's absolute cutting-edge. The US continues to restrict access to its most advanced chips, such as the Blackwell B200 and Rubin models. The US government also retains the option to limit H200 exports if domestic supply is impacted, and will receive a 25% revenue share from these sales. China, meanwhile, continues to develop its domestic AI chip capabilities, driven by a desire to reduce reliance on foreign technology.