Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / Why Nvidia Conceded China's AI Chip Market to Huawei
Transcript
- Lucas: Nvidia said something on its earnings call this week that would have been unthinkable three years ago. It told investors it has, quote, 'largely conceded' China's AI chip market to Huawei. Luna: That is a remarkable admission. I mean, Nvidia was the dominant supplier for AI training workloads globally, and China was a massive part of that revenue stream. Lucas: Exactly. And the market reacted — Nvidia's stock was up after earnings, but the China concession got less attention than the beat. Yet if you look at the iShares China Large-Cap ETF, ticker F-X-I, it dropped two point seven percent over the past five days. The broader emerging-market ETF, e e m, down two point eight percent. There's a China risk premium being priced in. Luna: Right, because this isn't just one company's problem. If the US's most advanced chip designer can't compete in China, it signals that export controls are permanently reshaping the market — and that local champions are filling the gap. Lucas: And Huawei's Ascend chips are the ones filling that gap. They're not as powerful as Nvidia's H100 or Blackwell series, but they're good enough for a lot of Chinese AI firms, and they don't come with the risk of US sanctions. Luna: So is this a technology story, a trade policy story, or both? Lucas: Both, but I'd argue it's primarily a trade policy story. The US Department of Commerce tightened export controls in 2022 and again in 2023, specifically targeting advanced AI chips. Nvidia designed a lower-spec chip called the A800 to comply with the rules, and then even that got restricted. At a certain point, customers in China just stopped waiting. Luna: And Huawei was ready. They've been investing in their own chip design capabilities since 2019, when the US first put them on the entity list. They have the Kirin mobile chips, and now the Ascend line for data centers. Lucas: The interesting thing is the timing. Nvidia's fiscal first quarter ended in April 2026, so this is about conditions right now. And the yen has weakened to 158.7 per dollar, the yuan is at 6.81 per dollar — both of which make US exports more expensive in Asia. That's a headwind Nvidia can't do much about. Luna: Let's talk about the numbers. How big is the China AI chip market that Nvidia is losing? Lucas: Estimates vary, but semiconductor analysts put the Chinese AI chip market at around twelve to fifteen billion dollars annually, growing at a compound annual growth rate of maybe thirty percent. Even if Nvidia kept only half of that, it's a multi billion dollar revenue stream. Luna: And now they're saying they've largely conceded it. That suggests they expect their share to drop to near zero over time. Lucas: Right. And Huawei is going to be the primary beneficiary. But there are also Chinese startups like Biren Technology and Cambricon that are trying to get into the market. The difference is that Huawei has the scale, the government support, and the sales channels to actually win data-center deals. Luna: I want to come back to the investor angle. Because Nvidia's stock barely flinched on this news. Why? Lucas: Because the market has already priced in the China headwind. Nvidia's data-center revenue is still growing like crazy — up over two hundred percent year-over-year in the most recent quarter — but that growth is coming from the US, Europe, and the Middle East. China has been a shrinking share of revenue for several quarters now. Luna: So investors are saying, 'We don't need China.' But is that sustainable? If the AI buildout eventually saturates in the West, where does the next wave of demand come from? Lucas: That's the trillion-dollar question. China is the second-largest economy in the world. If you're locked out of it, you're essentially ceding that market to local competitors who will use it to refine their own technology. And then those competitors might eventually compete with you globally. Luna: That's exactly the Huawei playbook we saw in telecom equipment. Huawei was a domestic player, then it became dominant in emerging markets, and now it's a serious competitor in Europe. Lucas: Exactly. And the same could happen in AI chips. Already, there are reports that Chinese companies are using Huawei's Ascend chips to train large language models. The quality might not be at Nvidia's level today, but it's improving fast. Luna: Let's look at the broader emerging-market data. The iShares MSCI Emerging Markets ETF, ticker e e m, is down two point eight percent over the past five days. The iShares China Large-Cap ETF, F-X-I, down two point seven. The iShares MSCI South Korea ETF, ticker e w y, down five point five percent. That's a significant selloff. Lucas: South Korea is particularly interesting because Samsung and SK Hynix are major memory suppliers for AI chips. If the China AI chip market is shifting to domestic suppliers, that could affect demand for memory from Korean companies as well. So the ripple effects go beyond just Nvidia. Luna: And Taiwan Semiconductor, which manufactures many of Nvidia's chips, is also exposed. If Nvidia sells fewer chips to China, TSMC's volumes could be affected, though they have plenty of demand elsewhere. Lucas: But here's the thing — the selloff in emerging markets this week isn't just about Nvidia. The trade-weighted US dollar index hit 119.3, up from 118.67 a week ago. A stronger dollar makes it harder for emerging-market economies to service dollar-denominated debt and makes their exports more expensive. So there's a macro headwind on top of the tech-specific story. Luna: Right. And the US trade deficit widened to sixty-point-three billion dollars in March 2026, down from fifty-seven point eight billion the prior month. That's a bigger deficit, which usually weakens the dollar, but the dollar is still strong. That tells you capital flows are favoring the US right now. Lucas: Exactly. And that's the environment in which Nvidia made its China concession. It's not just about export controls — it's also about currency dynamics and the overall risk appetite for emerging markets. Luna: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. Just saying. Lucas: Yeah, we don't run ads — that's a deliberate choice. If you want to support that, buy me a coffee dot com slash fexingo is the place. Luna: Alright, back to the chips. So what does Nvidia do now? They can't change US export policy. Lucas: They can't. But they can continue to push the boundaries of what's allowed. There's speculation that Nvidia might design a new chip specifically for the Chinese market that complies with the latest export controls, similar to the A800. But the problem is that each time they do that, the US government tightens the rules further. Luna: It seems like a cat and mouse game that Nvidia can't win. Lucas: It is. And meanwhile, Huawei is selling its Ascend 910B chip to Chinese cloud providers like Alibaba and Tencent. Those companies are building out AI infrastructure at massive scale. They need chips, and they're buying domestic. Luna: One more thing — Putin was in Beijing this week, and the headlines talked about China-Russia ties. Does that affect the chip story at all? Lucas: Indirectly, yes. Russia is also subject to US export controls, and China is a key supplier of chips and electronics to Russia. If China's own chip industry improves, it could also supply Russia with more advanced AI chips, which would further erode the effectiveness of US sanctions. Luna: So the Nvidia concession is really a canary in the coal mine for US tech dominance. Lucas: I think so. For decades, US companies dominated cutting-edge semiconductors. Export controls were supposed to slow down China's progress, but they may have accelerated it by creating a captive market for domestic firms. Nvidia's admission this week is the clearest signal yet that the strategy has a major cost. Luna: And it's a cost that will show up in future earnings, even if the market isn't pricing it in yet. Lucas: Exactly. This is going to be one of the most important cross-border business stories to watch over the next few years.