Nvidia (NVDA) has emerged as a dominant force in the semiconductor industry, riding the wave of booming demand for artificial intelligence (AI) applications. Its advanced GPUs have become the backbone of modern AI systems, enabling cutting-edge technologies across industries. This explosive growth has propelled Nvidia to unprecedented heights, allowing it to reach a $3.3 trillion market capitalization in 2024.
However, Nvidia’s meteoric rise is unfolding against the backdrop of the ongoing U.S.-China chip war. In recent years, Washington has enforced stringent export controls on Nvidia’s most advanced chips, such as the A100 and H100, to limit China’s access to cutting-edge AI hardware. These regulations forced Nvidia to develop downgraded versions of its chips for the Chinese market to comply with U.S. requirements, significantly affecting its sales in one of the largest markets for AI chips.
In this article, we’ll examine what to expect from the U.S.-China chip war in 2025 and its potential implications for Nvidia’s future growth, particularly in light of a recent report indicating that the U.S. is preparing to announce new AI chip restrictions in the coming weeks. With that, let’s dive in.
About Nvidia Stock
Nvidia (NVDA) is a premier technology firm known for its expertise in graphics processing units and artificial intelligence solutions. The company is renowned for its pioneering contributions to gaming, data centers, and AI-driven applications.
Shares of the semiconductor giant soared 184% in 2024, significantly outperforming the broader market. The rally was fueled by demand for its semiconductors used in artificial intelligence applications, enabling the company to reach a $3.3 trillion market cap, making it the second most valuable company after Apple (AAPL).
U.S. Prepares New AI Chip Restrictions
Nvidia anticipates over $10 billion in international sales this fiscal year, but President Joe Biden’s administration is progressing with regulations that may restrict this growth. Washington officials are concerned that Nvidia’s global sales surge could strengthen adversaries such as China, which aims to become the world’s AI leader by 2030. The New York Times recently reported that the Biden administration is developing rules to tighten control over advanced AI chip sales. The measure seeks to restrict semiconductor shipments to certain countries that are accused of supplying them to Beijing.
According to the report, the proposed framework would permit unrestricted purchases by U.S. allies, completely block adversaries, and allocate quotas to other nations based on their alignment with U.S. strategic objectives. The rules target China, but they risk causing conflict between the U.S. and countries that may not appreciate their chip purchases being micromanaged by Washington. As a result, potential Nvidia buyers such as Saudi Arabia, Malaysia, and Bhutan could become entangled in the battle for AI supremacy between the United States and China. The report also said that purchases of Nvidia chips might necessitate collaboration with approved American and European cloud service providers and additional guarantees to the U.S. government that the technology will not be shared with China. This threatens an international expansion strategy that Jensen Huang, the company’s CEO, refers to as “sovereign A.I.”
A draft of the new rules started circulating among chip lobbyists in December, as reported by the NYT. The restrictions would facilitate faster approvals for data centers constructed by cloud computing providers from the United States and Europe, capping the number of chips at several hundred thousand. At the same time, the approval process for companies from other countries would be slower and subject to greater scrutiny. Huang and Tim Teter, Nvidia’s general counsel, contacted Biden administration officials to express concerns that the rules would harm the company, three people familiar with the calls told the NYT. The rules are anticipated to be unveiled in the coming weeks, and Huang has reportedly reached out to individuals close to President-elect Donald Trump’s incoming administration, hoping they might reverse the rules in January.
Experts have said it is uncertain how the Trump administration will approach this policy. However, it is important to note that Republican leaders in the House and Senate have criticized previous Biden administration restrictions on chip technology and China as being too weak.
U.S. Prompts Nvidia Investigation into Chips Found in China
The news of potential new AI chip restrictions came amid a report from The Information that the U.S. Commerce Department had queried Nvidia to investigate how the company’s chips made their way to China over the past year.
According to the report, the chip giant has requested major distributors like Super Micro Computer (SMCI) and Dell Technologies (DELL) to perform spot checks on their customers in Southeast Asia. Notably, NVDA’s AI chips are embedded in server products manufactured by Super Micro and Dell.
The news outlet reported that despite recent inspections by Super Micro, five individuals were involved in smuggling Nvidia chips. Some of the chips either had their serial numbers duplicated or the serial numbers of the servers were altered, the report said, citing a person close to Super Micro. Super Micro stated that it investigates and addresses any unauthorized exports or re-exports of its products by third parties.
Dell said it mandates its distributors and resellers to comply with all applicable regulations and export controls. The company added that it takes appropriate measures, “including termination” of its partnership if a partner fails to comply with these obligations.
The U.S. has long enforced export controls on Nvidia’s advanced chips, such as the A100 and H100, due to national security concerns, compelling Nvidia to supply downgraded versions to China to comply with regulations. As a result, Nvidia’s revenue from China has significantly declined - from accounting for 24.6% of total revenue in early 2022 to only 12.2% by mid-FY25.
China Pushes for AI Self-Reliance
It’s also vital to acknowledge the developments in Chinese AI chip technology that have occurred amid tensions with the U.S. With that, China is focusing on AI and semiconductor self-sufficiency through initiatives such as the “New Generation Artificial Intelligence Development Plan” and “Made in China 2025.” Moreover, in late May of last year, China launched its largest-ever investment fund for the domestic chip industry, valued at 344 billion yuan ($47.5 billion), aimed at strengthening its domestic semiconductor supply chain.
Notably, Huawei’s HiSilicon division already manufactures the Ascend series of AI processors, including the Ascend 910B. This processor is designed for high-performance training and inference workloads, catering to growing demand from data centers and autonomous systems. Also, Baidu’s (BIDU) Kunlun 2 chip is used to power applications such as deep learning and autonomous systems. In addition, Alibaba (BABA) and Tencent (TCEHY) are making investments in AI infrastructure, including custom chips for cloud platforms. Finally, China has emerging companies in the AI field such as Cambricon, Moore Threads, and Enflame Technology, which are developing GPUs aimed at both training and inference AI applications.
These developments are also likely to affect Nvidia’s sales in China over time, which could further harm the company, especially given that China represents one of the largest global markets for AI chips.
What Do Analysts Expect for NVDA Stock?
Despite the U.S.-China chip war, analysts remain optimistic about NVDA’s long-term growth prospects, as indicated by their consensus “Strong Buy” rating. Analysts anticipate a continuous ramp-up of Nvidia’s Blackwell in 2025 and the Rubin chip platform in 2026, which are expected to further boost the company’s top and bottom lines.
Out of the 43 analysts covering the stock, 36 recommend a “Strong Buy,” three advise a “Moderate Buy,” and four give a “Hold” rating. The mean target price for NVDA stock is $175.55, indicating upside potential of 30.7% from current levels.
