Nvidia Faces Growing Challenge in China as Homegrown Chipmakers Surge

Nvidia, a dominant force in the artificial intelligence (AI) chip market, is confronting a significant new challenge in China, one of its largest markets. Beijing's intensified push for technological self-reliance, coupled with stringent U.S. export controls, is rapidly accelerating the development and adoption of domestic AI chip alternatives. This strategic pivot by China is reshaping the global semiconductor landscape, forcing Nvidia to adapt its strategies and impacting its substantial revenue streams from the region.

theregister.com reported, The shift sees the Chinese government actively mandating the use of local chips, with targets for domestic options to capture 55% of the market by 2027. State-owned computing hubs are already required to source over 50% of their chips domestically. This aggressive policy is a direct response to U.S. restrictions, which have sought to curb China's access to cutting-edge AI chips since October 2022, with new regulations effective January 2025 further tightening access based on a Total Processing Performance (TPP) metric.

As a result, Nvidia, which once held an estimated 95% share of China's AI chip market, has seen this plummet to around 50%. The company is now compelled to divert valuable research and development resources to create "China-specific" downgraded chips, impacting its profitability and global market strategies.

financialcontent.com noted, Chinese tech giants like Alibaba, ByteDance, and Tencent are under governmental pressure to halt orders for Nvidia chips and instead invest heavily in their own in-house AI chip development, fostering a burgeoning domestic industry.

This dynamic has turbo-charged China's domestic AI chip manufacturers, with Huawei at the forefront with its Ascend series of AI processors. Other companies like Cambricon Technologies have reported explosive revenue growth, while Semiconductor Manufacturing International Corp (SMIC) and Moore Threads are rapidly advancing their capabilities, all supported by substantial state funding.

straitstimes.com reported, The competitive landscape is undergoing a dramatic transformation, leading to what some analysts describe as a "splinter-chip" world and a bifurcation of AI development.

• **Geopolitical Underpinnings and "Chip War" Escalation:** The current situation is a profound manifestation of the escalating technological and geopolitical rivalry, primarily between the United States and China, often termed the "chip war." U.S. export controls, initiated in October 2022 and further tightened in January 2025, aim to prevent China from accessing advanced AI chips and manufacturing equipment, citing national security concerns.
• This has spurred Beijing's "independent and controllable" strategy, driven by national security and economic resilience.
• **China's Strategic Response and Domestic Champions:** Beijing's ambitious "Made in China 2025" plan, launched in 2015, aims to upgrade manufacturing capabilities and achieve technological self-reliance, with the semiconductor industry central to this goal. Huawei, with its Ascend series (including 910D, 910C, 910B, and upcoming 950PR, 960, 970), is positioning itself as a direct competitor to Nvidia's offerings.
• Other key players include Alibaba, which revealed a new chip in September 2025 designed to compete with Nvidia's H20 while consuming less power, and Cambricon Technologies, whose share price more than doubled over a three-month period.
• **Impact on Nvidia's Market Share and Strategy:** Nvidia's market share in China's AI chip sector has significantly declined from an estimated 95% to around 50% following the bans. The company is now forced to develop "China-specific" downgraded chips, such as the H20, to comply with U.S. export control thresholds, impacting its profitability and global market strategies.
• Nvidia CEO Jensen Huang has acknowledged the intense competition, stating that China is "nanoseconds behind" the U.S. in chip development.
• **Government Mandates and Investment:** The Chinese government is actively mandating the use of domestic chips, with state-owned computing hubs required to source over 50% of their chips domestically by 2025, and a broader target of 55% market share for local AI chips by 2027. This is backed by substantial state funding, with over $1.4 trillion invested in "Made in China 2025" initiatives since the pandemic.
• Tencent Cloud, Alibaba, and Baidu are integrating domestically developed AI chips into their platforms.
• **Technological Gap and Catch-Up Efforts:** While Chinese domestic chips are rapidly advancing, experts like Stephen Wu, founder of Carthage Capital, note that achieving full parity with Nvidia's best chips, including high-bandwidth memory and packaging, may not be achievable by 2030 or even later, suggesting a 5-10 year gap.
• However, Chinese AI startups like DeepSeek have demonstrated remarkable resilience by optimizing software and focusing on efficiency with older hardware, training capable AI models with fewer high-end chips.
• **U.S. Legislative Actions and Supply Chain Implications:** The U.S. Senate passed legislation in October 2025, as part of the FY 2026 National Defense Authorization Act, requiring American AI chipmakers like Nvidia and AMD to prioritize domestic customers. This move, despite opposition from Nvidia, aims to strengthen U.S.-based AI labs and startups but further disrupts global supply chains and exacerbates the "AI Cold War."
• China, in turn, has increased customs inspections on semiconductor shipments to restrict Nvidia imports.
• **Future Outlook and "Silicon Curtain":** Forecasts suggest locally developed AI chips could capture 55% of the Chinese market by 2027, up from 17% in 2023. This trajectory is creating a "Silicon Curtain," leading to a bifurcated global AI landscape with distinct technological ecosystems and parallel supply chains.
• Huawei has announced a three-year roadmap for its Ascend range, aiming to double computing power annually and release new models until 2028, further intensifying competition.