Nvidia's AI Chip Comeback: Can Policy Shifts Reclaim China's Market?

The U.S.-China rivalry over AI supremacy has reached a boiling point, with semiconductor exports at the center of the conflict. For Nvidia (NVDA), the world’s leading AI chipmaker, the stakes are existential: its dominance in China’s $50 billion AI infrastructure market is collapsing, but a strategic pivot—and potential U.S. policy shifts—could reverse its fortunes.

The Current Crisis: A Rapid Retreat

Nvidia’s market share in China’s AI chip sector has plummeted from near 95% at the start of Biden’s administration to roughly 50% today. The collapse stems from U.S. export restrictions aimed at curbing China’s military advancements, which instead galvanized Beijing to accelerate its homegrown chip industry. Chinese firms like DeepSeek and Huawei have surged, filling the vacuum with本土-designed chips.

The financial toll has been severe: Nvidia wrote off $5.5 billion in 2024 due to its H20 GPU line, which was initially designed to comply with earlier export rules but later banned under stricter Trump-era policies. Competitors like AMD (AMD) face similar pain, with up to $800 million in write-offs for their MI308 chips.

The Policy Pivot: A Window of Opportunity

On May 13, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) delivered a critical shift. It rescinded Biden’s controversial AI Diffusion Rule, which had threatened to strangle AI innovation by restricting exports of advanced chips and training data. While BIS introduced stricter guidelines targeting Huawei’s Ascend chips and potential diversion to Chinese supercomputers, the removal of the Diffusion Rule opens a lifeline for Nvidia.

The move reflects a recalibration: the Trump administration now prioritizes selective collaboration with allies while tightening controls on adversaries. This creates a narrow path for Nvidia to regain traction in China. By designing chips compliant with revised BIS rules—like working with Chinese firms to exclude military applications—Nvidia could reclaim its role as the go-to provider for civilian AI infrastructure.

The Risk: Huawei’s Shadow

The biggest threat remains Huawei. Its Ascend chips, now explicitly targeted by BIS as a “prohibited item,” have become a geopolitical lightning rod. While the U.S. warns against their use, China’s Commerce Ministry vows to protect domestic companies. Huawei’s ecosystem—integrated into China’s telecoms, cloud, and AI services—presents a formidable challenge.

Yet Nvidia holds an irreplaceable advantage: its CUDA software stack and AI training infrastructure remain unmatched. Competitors like DeepSeek lack the decades of ecosystem development and partnerships that power Nvidia’s AI platform. Even Huawei’s Ascend chips rely on reverse-engineered software layers that cannot match CUDA’s performance or developer adoption.

The Investment Thesis: Buy the Dip Before Policy Rebound

The next 12 months will be decisive. BIS’s May 13 policy shift creates a “wait-and-see” period for investors, but the groundwork for Nvidia’s recovery is clear:
1. Market Rebound: Easing restrictions could reverse the 50% market share loss. China’s AI researchers—50% of the global total—still rely on Nvidia’s tools for cutting-edge work.
2. Tech Stack Superiority: CUDA’s dominance in AI training and inference is near impossible to replicate. Even with Chinese chips, enterprises will still need Nvidia’s software to run complex models.
3. Policy Flexibility: The Trump administration’s focus on selective controls (e.g., targeting Huawei but leaving the door open for compliant partners) benefits Nvidia’s ability to collaborate while staying compliant.

Risks to Watch

• Huawei’s Counterattacks: If China retaliates by blocking U.S. firms entirely, Nvidia could face new headwinds.
• BIS Overreach: The new “red flag” guidelines for diverting chips to supercomputers could lead to unintended penalties for compliant companies.
• Competitor Innovation: China’s AI chip sector is evolving rapidly—DeepSeek’s Gemini series already matches Nvidia’s H100 in certain benchmarks.

Final Call: Position Now for the AI Infrastructure Boom

The U.S.-China AI chip war is a marathon, not a sprint. Nvidia’s stock (NVDA) has underperformed amid the export chaos, but the May 13 policy shift marks a turning point. With its unmatched tech stack and the potential for a China market rebound, this is the moment to buy.

Recommendation: Accumulate NVDA now ahead of Q3 earnings, when the impact of revised policies will become clearer. The long-term prize—a $50 billion AI infrastructure market in China—is too vast to ignore. The risk of missing this recovery outweighs the near-term geopolitical noise.

The race for AI supremacy isn’t over. For investors, the question is: Will you bet on the U.S. tech giant with a 30-year lead—or on China’s upstarts? The answer, for now, is clear.