Nvidia’s Jensen Huang Navigates US-China Chip Tensions

Nvidia CEO Jensen Huang addressed escalating tensions between the United States and China on September 17, 2023, remarking that both nations have “larger agendas to work out.” His comments came during a press conference in London, where he discussed the challenges Nvidia faces amid the ongoing US-China trade war, particularly concerning demand for the company’s vital artificial intelligence chips.

The backdrop to Huang’s remarks involves a recent report by the Financial Times, revealing that China’s internet regulator has ordered leading tech firms to cease purchases of Nvidia’s AI chips and to cancel existing orders. This directive follows earlier indications that major Chinese companies were keen to acquire more of Nvidia’s products, despite pressure from Beijing to restrict such purchases.

Given the complex dynamics of the US-China relationship, Nvidia finds itself uniquely positioned. The company dominates the AI chip market and is under scrutiny from both the White House and the administration of Chinese President Xi Jinping. Huang expressed disappointment regarding the regulatory environment, stating, “We can only be in service of a market if a country wants us to be.”

Despite these challenges, Nvidia’s market valuation remains substantial, currently exceeding US$4.2 trillion. Nevertheless, shares of the company fell by 2.6 percent on the day of Huang’s comments, reflecting investor concerns. The company’s challenges have intensified with Beijing’s recent accusations that Nvidia violated anti-monopoly laws during a preliminary investigation into its business operations.

In August, a deal brokered by former President Donald Trump allowed Nvidia licenses to sell H20 chips to China, in exchange for a 15 percent cut of those sales. This arrangement raised eyebrows given concerns over national security, particularly as Trump initially stated he would not authorize such a deal.

As the trade conflict deepens, Nvidia’s lobbying efforts in Washington have grown significantly. The company recently engaged three new lobbying firms, employing a total of 21 lobbyists—an increase from US$640,000 in lobbying expenditures for all of last year to nearly US$1.9 million in the first half of 2023.

The Cyberspace Administration of China has directed firms such as ByteDance and Alibaba to halt testing and orders of the RTX Pro 6000D, according to the Financial Times. This latest ban is more stringent than previous guidance, which had focused primarily on the H20 chip. “We’ll continue to be supportive of the Chinese government and Chinese companies as they wish,” Huang reiterated in London.

The implications of these restrictions could further impact Nvidia’s operations in China, a critical market for semiconductors, which accounted for 13 percent of Nvidia’s total sales last year. Analyst Michael Ashley Schulman commented on the intricate balance multinational firms like Nvidia must maintain, stating, “They are expected to code-switch between Washington’s national security doctrines and Beijing’s techno-sovereignty demands.”

Despite the August agreement allowing for a 15 percent revenue share, Nvidia has yet to deliver any H20 chips to China, and there are no clear guidelines from the US on payment processes. Meanwhile, the RTX6000D chip, specifically designed for the Chinese market, has faced lukewarm demand. Reports indicate that some major firms chose not to proceed with orders after initially expressing interest.

As Nvidia continues to navigate this challenging landscape, the company’s ability to adapt to shifting regulations and market demands will be critical in sustaining its global leadership in AI chip technology.