How Cadence's AI Success Validates NVIDIA's Quiet Expansion in China

The U.S.-China tech rivalry has long cast a shadow over semiconductor giants like NVIDIA (NVDA). Yet, as Cadence Design Systems (CDNS) unveiled its Q2 2025 results, a subtle but powerful truth emerged: NVIDIA's influence in China isn't fading—it's evolving. Let's unpack how Cadence's financial performance and product strategy indirectly validate NVIDIA's growing clout in the world's largest AI market.

The Hidden Thread: NVIDIA in Cadence's AI Engine

Cadence's Q2 2025 revenue surged 20% year-over-year to $1.275 billion, driven by its AI-driven product portfolio. A standout was the Millennium M2000 AI Supercomputer, which leverages NVIDIA Blackwell to deliver “unprecedented speed and scale” in engineering simulations. This isn't just a product launch—it's a strategic pivot. By embedding NVIDIA's cutting-edge Blackwell chips into its supercomputers, Cadence is indirectly fueling demand for NVIDIA's hardware in China, where AI infrastructure is booming.

Even as U.S. export controls tighten, NVIDIA's Blackwell architecture is finding a backdoor into China via partners like Cadence. The Millennium M2000, designed for global markets, is being deployed by Chinese firms such as Ascendance and MediaTek, who rely on Cadence's tools for chip design. This symbiosis means NVIDIA's GPUs remain critical to China's AI ambitions, even if they're not sold directly to local companies.

China's Role: A Smaller Slice, but a Strategic One

China accounted for 9% of Cadence's revenue in Q2 2025, down from 12% in Q2 2024. On the surface, this looks like a retreat. But dig deeper: Cadence's Core EDA business grew 16% year-over-year, driven by AI-driven design tools. These tools, powered by NVIDIA's Blackwell, are in high demand globally—including in China, where companies are racing to build AI chips and autonomous systems.

The key takeaway? Export restrictions may limit direct sales to China, but indirect adoption of NVIDIA's tech via partners like Cadence is thriving. This mirrors NVIDIA's broader strategy: rather than selling directly to sanctioned Chinese firms, it's enabling third-party ecosystems to integrate its hardware into AI workflows.

The Legal and Geopolitical Landscape

Cadence's $140.6 million settlement with the U.S. Department of Justice over past China-related transactions underscores the risks of operating in this market. Yet, the company's raised 2025 revenue outlook (13% growth) and non-GAAP operating margin of 44% suggest it's navigating these challenges. The same logic applies to NVIDIA: while direct sales to China are constrained, its indirect partnerships are a lifeline.

Why This Matters for Investors

NVIDIA's Blackwell-powered AI supercomputers are already a $10 billion business. Cadence's adoption of this technology in its Millennium M2000 isn't just a one-off—it's a signal that NVIDIA's AI infrastructure is indispensable, even in a regulated market. For investors, this means:
1. Long-term growth potential: As China pivots to AI-driven industries, NVIDIA's role in enabling global AI ecosystems will persist.
2. Diversified revenue streams: Partnerships with EDA leaders like Cadence reduce reliance on direct sales to China, mitigating regulatory risk.
3. Market leadership: NVIDIA's Blackwell is outpacing alternatives like Huawei's Ascend 910C, ensuring its dominance in high-performance computing.

The Bottom Line: Bet on the Ecosystem

NVIDIA's influence in China isn't measured by direct sales alone. By empowering partners like Cadence to build AI infrastructure, it's embedding itself in the backbone of global innovation. While geopolitical tensions will always pose risks, the demand for NVIDIA's technology—both in China and beyond—is a testament to its leadership in the AI era.

For investors, the message is clear: NVIDIA's ecosystem is a moat, and Cadence's success with the Millennium M2000 is a bullish sign. As the AI Supercycle accelerates, NVIDIA's indirect but pervasive presence in China will continue to drive value—quietly, but powerfully.