Anna's Deep Dives

_{Just facts, you think for yourself}

A. Nvidia: Stuck Between U.S. Rules and the Chinese Market

Nvidia, a top AI chip designer, is stuck in the middle of U.S.-China politics. U.S. government rules greatly limit its sales of high-end AI chips to China. This is a big problem because China used to make up about $17 billion, or 13%, of Nvidia's total yearly sales.

U.S. export rules, which have gotten stricter since 2022, try to stop China from using advanced U.S. chip tech for its military. A new three-level export system affecting 120 countries started in January 2025. This made it even harder for Nvidia to sell to important markets. Nvidia's CEO, Jensen Huang, knew this was serious, so he went to Beijing in April 2025. He wanted to talk about the tricky situation with Chinese officials and big customers.

Even with the current rules, China's AI market has a lot of room to grow. It could be worth around $150 billion by 2030, which is very attractive for any global tech company. But Nvidia has more competition in China. Local companies like Huawei and new AI startups like DeepSeek are quickly making their own AI chips. The Chinese government strongly backs this move to become self-sufficient in tech. In 2023 alone, it put 344 billion yuan (about $47.5 billion) into its own semiconductor industry. China's goal is clear: to make 70% of its own important semiconductors by the end of the 2020s.

U.S. policy is still changing. The Trump administration is reportedly thinking about making export rules easier for some friendly countries like the UAE and India. But it's expected to keep, or even make stricter, the rules for AI chip exports to China. For Nvidia, this means dealing with difficult and always-changing U.S. licensing rules for any sales of powerful chips to its Chinese customers, who used to be very important.

B. Nvidia's Modified Chips for China (H20, etc.): New Ideas or Just Weaker?

To follow U.S. export rules, Nvidia has started designing changed AI chips just for the Chinese market. The company plans to release a very different version of its H20 AI chip for China in July 2025. This changed H20 will have less memory and be slower overall than the regular versions. But users will still be able to customize it somewhat. This is Nvidia's way of trying to follow the rules.

The original H20 chip was made as Nvidia's most powerful AI chip allowed for China under older rules. It brought in a lot of sales, about $17 billion in the business year ending January 26, 2025. New U.S. export rules that started in January 2025 required licenses for even more types of advanced chips. This led to these new changes.

The new changed H20 will reportedly have fewer processing parts and be slower in key ways. This makes it naturally less powerful than versions sold outside China. Its price is expected to be between $12,000 and $15,000. This is much lower than the older H800 model (another chip for China under old rules), which cost about $280,000, showing the difference in power. Earlier in 2024, Nvidia had already released the first versions of chips for China that followed the rules, including the H20, L20, and L2, all with less computing power. Another changed H20 with less memory was also planned for May 2025 – this month.

Nvidia also plans to release two more chips, the L20 and L2, made to follow the same strict U.S. export rules. Changing its products like this shows Nvidia's main plan: to keep as much of the large Chinese market as it can, even with growing political problems and tough rules. The question is if these chips that follow the rules are really new ideas or just a weaker version they have to make.

C. Weaker Chips for China: How This Affects Their AI Tech

The AI chips Nvidia now sells to China, like the H20, L20, and L2 models, are made with less computing power on purpose. This is because of U.S. export rules trying to limit China's access to the best AI tech. This quickly affected Nvidia's sales in China. In the fourth business quarter ending January 2024, Nvidia's sales in China and Hong Kong dropped to $1.9 billion. This was a big fall from $4 billion in the quarter before.

The newest change to the H20 chip, coming out this month in May 2025, has even less memory to follow the rules. These downgrades forced by politics mean Chinese companies can only officially get AI hardware from Nvidia that is weaker than what's sold elsewhere. This naturally limits how powerful Chinese AI can be if they only use these changed chips. To make things more complicated, new energy saving rules in China might also limit sales of some versions of Nvidia’s H20 chip, no matter the U.S. export rules. This gives chip sellers two sets of rules to worry about.

D. How Chinese Customers Are Adjusting

Even though the chips that follow export rules are less powerful, Chinese tech companies still really want them. Big companies like Alibaba, Tencent, and Baidu ordered over $16 billion worth of Nvidia's H20 chips in early 2025. ByteDance, TikTok's parent company, had already ordered over 200,000 H20 chips in 2024, a deal worth more than $2 billion. These large orders show that even weaker versions of Nvidia's chips are still very important for the AI plans of many big Chinese tech companies. They are getting used to the new situation in the market.

The growth of Chinese AI startup DeepSeek adds another interesting point. DeepSeek's R1 AI model, released in January 2025, reportedly did better than OpenAI's ChatGPT in some tests and quickly became a popular AI app. Importantly, DeepSeek did this using about 2,000 of Nvidia's older H800 chips that followed export rules. This success shows that Chinese companies can create new things and get good results even with limited or weaker hardware.

At the same time, Chinese companies are looking for and investing in local options instead of U.S. AI chips. For example, Huawei's new Ascend 910C AI chip is quickly becoming popular in China. Huawei plans to make a lot – 100,000 units – of its Ascend 910C chip this year. This shows they clearly want to compete with Nvidia, at least in China. This trend of customers adjusting, along with China making more of its own chips, is slowly moving China toward being more independent in the important AI hardware area.

E. The Cost: Billions Lost by Nvidia and Others Due to Export Rules

The U.S. export rules have cost Nvidia billions of dollars. In April 2025, the company said it would have charges of $5.5 billion. This money problem was directly because of the limits on its H20 chip sales to China. How much Nvidia made from China had already gone down. It was 13% in its 2024 business year, down from 17% the year before. This shows how U.S. rules have affected them over time. The U.S. government put the specific rules on the H20 in place on April 9, 2025.

Nvidia's stock price reacted badly to this news. It fell by 6% in after-hours trading after the April announcement. Earlier rule changes had also caused stock drops, like a nearly 7% fall after previous rules were explained. A bigger shock happened on January 27, 2025, partly because of DeepSeek's R1 model release. Nvidia's stock dropped 17% that day, losing about $589 billion to $600 billion in market value. From the start of the year until May 6, 2025, Nvidia's stock had fallen by 15%, to $111.58.

These money problems aren't just for Nvidia. AMD, another big U.S. chip designer, might lose about $1.5 billion because of rules affecting its sales to about 80 Chinese companies. Those companies make up about 25% of AMD's total sales. The combined market value of just two big companies, Nvidia and chip equipment maker ASML, dropped by over $200 billion at one point. This shows the wider tech industry is struggling. 

Applied Materials, a U.S. supplier of chip-making equipment, expects to lose about $400 million in sales in its 2025 business year because of these export rules. ASML, based in the Netherlands, thinks its sales to China will fall from 29% of its total sales to about 20%. The whole U.S. semiconductor industry has seen its total market value drop by about $130 billion since the first set of tighter rules in 2022. Nvidia's dependence on sales from China has reportedly shrunk from 19% to the mid-single digits more recently.

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