Nvidia’s (NVDA) China business continues to face geopolitical hurdles, which could pose longer-term competitive risks for the AI chipmaker.
Ongoing US-China tensions have upended Nvidia’s sales in what was one of its largest markets. In the company’s most recent quarter, revenue from China, which includes Hong Kong, dropped 45% from a year ago to about $3 billion, according to Bloomberg data.
And while the Trump administration green-lighted the sale of Nvidia’s H200 chip to China this week, albeit with a 25% tax, Reuters reported that China is barring imports of the GPUs except in special cases.
So far, Nvidia’s dominant position in the chip market doesn’t appear to have suffered much after the company initially lost access to the Chinese AI market in 2025. It became the first company with a $5 trillion valuation last fall. Despite a decline in China sales, its third quarter revenue overall soared more than 60% during the period to about $57 billion.
But over the long term, the Chinese commercial sector’s development and use of domestic chips could narrow Nvidia’s lead on the global stage, Wall Street analysts told Yahoo Finance.
They said Nvidia’s dominance in AI software could suffer if Chinese tech developers begin making advances in open source alternatives, which would hurt its leadership in hardware as well.
“That’s the real nightmare scenario,” Seaport analyst Jay Goldberg said.
Much of Nvidia’s competitive edge comes from its software stack. Developers using its AI systems rely on the company’s CUDA platform, which includes a library of proprietary tools that lets them program its GPUs efficiently and reinforces the company’s dominance in the chip market.
As companies build on CUDA, the cost of switching to a new software platform becomes disadvantageous, and they end up sticking with Nvidia’s offerings, which are only available if developers are programming on Nvidia’s GPUs. Hence, the preference for Nvidia’s software is key to maintaining its lead in the hardware space.
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While China’s chip suppliers — from tech giants Huawei and Alibaba (BABA) to newly public players such as Moore Threads and MetaX — lag Nvidia in the performance capabilities of their chips, there’s a risk that the country’s AI developers, forced to use those inferior, domestically-produced chips, will build their own open-source software. Open-source AI software is typically written to run on many different types of chips.
