Beijing’s subtle squeeze on foreign AI hardware could reshape the chip
market and not in Nvidia or AMD’s favor.
The Great Chinese Chip Nudge
Beijing has decided Nvidia’s H20 AI processors are better left on the
shelf, certainly if you’re working on anything that even smells like government
or national security. Over the past few weeks, Chinese regulators have been
leaning on companies from Alibaba
to ByteDance to explain why they are ordering these American-made Artificial Intelligence (AI) chips
when Huawei and other local players are hungry for business.
Exclusive: China urges companies to avoid using Nvidia’s H20 chips, complicating the chipmaker’s bid to recoup billions in lost revenue https://t.co/JP2c6h6OBV
— Bloomberg (@business) August 12, 2025
The Ministry of Industry and Information Technology (MIIT) and the
Cyberspace Administration of China (CAC) have sent notices and held meetings
with some of the country’s biggest tech names, pressing them to justify H20
purchases and, in some cases, suggesting that scaling back orders might be
politically prudent. As one Chinese data center operator put it, buying Nvidia
H20 chips “is not banned but has kind of become a politically incorrect thing
to dO.
Security Concerns, Real or Imagined
Officially, China’s reasoning is twofold. First, there are security
worries. State media and regulators have hinted, without proof, that Nvidia
chips might be able to track their location or be remotely shut down. Nvidia
has denied these claims outright, saying there are no “backdoors” in its
products. Regulators are not taking the company’s word for it and have summoned
Nvidia representatives to discuss the risks.
WATCH: Chinese authorities have urged local companies to avoid using Nvidia’s H20 artificial intelligence chips, particularly for government-related purposes, a media report said, citing people familiar with the matter pic.twitter.com/zSkCikwcsJ
— Reuters Business (@ReutersBiz) August 12, 2025
Second, there is the matter of data. Chinese officials have reportedly
bristled at the information Nvidia asks its customers to submit for US
government review, fearing
it could include sensitive client data. Nvidia says the H20 is not a
military product and is not used for government infrastructure.
Buy Local or …?
The other driver here is far simpler. Beijing wants more yuan spent on
domestic silicon. China has been investing heavily in homegrown AI chipmakers
such as Huawei and Cambricon, even if sanctions on advanced chipmaking gear
have slowed production. The idea is to create a captive market large enough to
absorb whatever local suppliers can produce.
That policy is already having ripple effects. Shares in Chinese chip
designer Cambricon surged 20 percent on the guidance news, and Semiconductor
Manufacturing International Corp (SMIC), China’s top contract chipmaker, jumped
5 percent on hopes for rising demand. It is a clear signal that the
government’s nudges are not just about security but also about industrial
policy in action.
Why This Hurts Nvidia and AMD
For Nvidia, this is a headache layered on top of another headache. The
company only just resumed selling the H20 in China after agreeing
to give the US government 15 percent of the revenue from those sales. Now
it faces a market where customers are under political pressure to avoid its
product.
Nvidia’s H20, designed specifically for China after earlier US
restrictions, was already a compromise. It is less powerful than the company’s
top-tier Blackwell chips but still capable enough to be useful in the AI
inference stage. If Chinese firms cut back on orders, Nvidia’s share of China’s
AI chip market, which Bernstein predicts will fall to 55 percent this year from
66 percent in 2024, could shrink even further.
US Tech is seriously compromised with backdoorsThe Fool’s Dilemma: NVIDIA, the H20 Chip, and a Backdoor Too FarSo NVIDIA is called in to explain to the Chinese government – and prove – that there’s no backdoor in the H20 chips it’s preparing to dump on the Chinese market.… pic.twitter.com/ohQJ9ellxx
— America-China Watcher (@PandemicTruther) August 3, 2025
It is not just Nvidia in the spotlight. Bloomberg reports that it’s
unclear if Beijing’s guidance mentions AMD’s MI308 chip directly, but it seems
as if the writing is on the wall. Foreign chips are not the preferred option.
The Bigger Picture
A stronger Chinese AI chip sector is bad news for both Nvidia and AMD.
If local players can meet demand for government and state-linked projects,
foreign firms lose their foothold in what is still the world’s largest tech
market. That means fewer sales, less influence and more room for domestic
champions to grow into global competitors.
Even if domestic chips are not yet as versatile for every workload,
they are improving quickly. Once Chinese firms get used to building AI systems
around local hardware, they will have little reason to look back across the
Pacific.
For now, the focus is on Nvidia’s H20. AMD should not get too
comfortable. It’s on Beijing’s list too, whether spelled out in black and white
or implied with a knowing nod.
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This article was written by Louis Parks at www.financemagnates.com.
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