The US-China tech cold war has thrown Nvidia’s once smooth growth into turbulence. The US government’s new export restrictions on Nvidia’s AI processors, especially the H20 chips, have caused a big shock to the semiconductor market, casting doubts on Nvidia’s financial health, competitive edge and investor returns.
Executive Actions and Market Reactions
Nvidia CEO Jensen Huang made a surprise visit to Beijing upon invitation. He pledged to optimize products to meet regulatory requirements and serve the Chinese market steadfastly, even developing customized chips for Chinese clients.
The US government’s move to restrict H20 chip exports to China has hit Nvidia hard financially. In the first quarter of fiscal 2026, Nvidia expects a $5.5 billion charge related to inventory, purchase commitments and services for the affected chips. This led to a sharp sell-off of Nvidia’s stock, with shares plunging over 6% in early trading and closing nearly 7% lower. AMD also warned of potential charges up to $800 million due to expanded export controls on its MI308 products, with its shares dropping 7.35%.
Shifting Competitive Landscape
For years, Nvidia has dominated the AI chip market. However, the new licensing requirements effectively prohibit the sale of these processors, pushing Chinese tech giants like ByteDance and Tencent to seek domestic alternatives. This creates opportunities for Chinese chipmakers such as Huawei, Cambricon Technologies, and Hygon Information Technology. Yet, the loss of access to advanced technology like the H20 chip, key for large language model training, will likely delay model training progress and affect product iteration speed for Chinese firms, while spurring investment and innovation in China’s chip industry.
Nvidia’s $500 Billion Plan and Market Impact
Faced with escalating trade tensions, Nvidia plans to invest up to $500 billion over the next four years to manufacture AI supercomputers in the US, partnering with Taiwanese companies like TSMC, Foxconn, and Wistron in Arizona and Texas. While this move aims to align with the US government’s push for domestic manufacturing and mitigate future tariff impacts, the $500 billion figure, representing the projected value of AI infrastructure produced rather than direct capital investment by Nvidia, has drawn skepticism from analysts.
Broader Market Turmoil and Future Outlook
The ripple effects of the US-China tech war extend beyond Nvidia and AMD, affecting companies like ASML and causing declines in Asian stock markets, particularly in Taiwan and Hong Kong. The rapid advancements of Chinese AI companies like DeepSeek have fueled national security concerns in the US, leading to increased scrutiny of Nvidia’s chip sales to China.
Despite the immediate financial hit and challenges from geopolitical complexities, many Wall Street analysts remain optimistic about Nvidia, viewing the recent dip as a “buying opportunity” due to its continued dominance in AI computing outside China and the long-term growth potential of the AI market. However, Nvidia’s ability to navigate geopolitical complexities, manage US expansion costs, and maintain its technological edge amid rising competition will be crucial for future shareholder returns. The US-China tech war has placed Nvidia at the center of a high-stakes geopolitical and economic drama, with the final outcome still uncertain.
