China plans to crack down on NVDA

China’s investigation into Nvidia (NVDA) over potential violations of its anti-monopoly law is significant due to Nvidia's reliance on the Chinese market and the broader context of U.S.-China trade tensions. China accounted for approximately 15% of Nvidia’s revenue in the most recent quarter, equating to $5.42 billion. While this percentage is down from 26% two years ago, China remains a critical market for Nvidia’s AI and gaming chips, particularly as U.S. restrictions on advanced semiconductor exports have already limited the company’s access to its most lucrative product lines in the region.

The crackdown raises questions about Nvidia’s compliance with prior commitments linked to its 2020 acquisition of Mellanox Technologies, which were part of the approval process set by Chinese regulators. This investigation appears to be Beijing’s latest retaliatory move in response to U.S. curbs on Chinese semiconductor firms, signaling an escalation in the tit-for-tat measures between the two nations. For Nvidia, the probe could result in fines, operational restrictions, or reputational damage, further complicating its efforts to navigate the Chinese market amid rising geopolitical tensions.

China’s actions are strategically timed following the U.S. government’s expansion of export controls targeting China’s semiconductor industry. These new restrictions have pushed Chinese regulators to emphasize self-reliance in critical industries like AI and semiconductors. By targeting Nvidia, a dominant player with a 90% share of China’s AI chip market prior to recent U.S. export curbs, Beijing is both protecting its domestic industries and retaliating against U.S. trade policies.

The implications of this probe extend beyond Nvidia. China’s aggressive posture, which includes banning exports of critical minerals like gallium and germanium, suggests a broader strategy to disrupt global semiconductor supply chains and counterbalance U.S. restrictions. By challenging Nvidia, Beijing may also be attempting to deter other multinational tech companies from heavily relying on the Chinese market or aligning too closely with U.S. policies.

For Nvidia, the financial stakes are high. While 15% of its quarterly revenue comes from China, the company’s share of sales to the region has been declining as U.S. restrictions bite and domestic Chinese competitors, such as Huawei, strengthen their offerings. Losing further ground in China would put pressure on Nvidia to find new markets or further diversify its revenue streams, particularly in areas like data centers, automotive chips, and Europe.

China’s probe also highlights the risks for foreign firms operating in a rapidly shifting regulatory environment. Nvidia is now at the center of a geopolitical battle that could redefine its strategy and market access. The company’s stock, already under pressure, is reacting negatively to these developments, with investors concerned about potential long-term revenue losses and the unpredictability of further actions from Beijing.

In the bigger picture, the Nvidia investigation underscores the fragility of U.S.-China economic relations and their impact on global technology markets. As China focuses on nurturing its domestic semiconductor industry, U.S. companies like Nvidia will likely face increasing scrutiny and barriers. This intensifying rivalry between the world’s two largest economies may force Nvidia and its peers to rethink their global supply chains and business models to mitigate risks and adapt to the evolving geopolitical landscape.