Nvidia’s Trump worries go far beyond China
Summary
“AI-diffusion” rules could limit the U.S. chip company’s sales even to friendly countries—and give more opportunity to foreign rivals.
The Trump administration’s recent ban on sales of Nvidia’s artificial-intelligence chips for the Chinese market has crimped the company’s growth potential and created an opportunity for competitors such as Huawei Technologies. That might only be the beginning.
In less than a month’s time, some of the most significant restrictions on AI computing power to date will come into effect. Those curbs—the “AI-diffusion" rules—place caps on how many AI chips can be sold in a swath of countries. These include many considered friendly to the U.S., such as Israel, Switzerland, India and Saudi Arabia.
The rules also limit the ability of huge U.S. tech companies such as Microsoft, Amazon and Google parent Alphabet to build large AI data centers in those so-called Tier 2 markets. The idea is to limit the ability of countries like China to circumvent U.S. export controls by acquiring AI chips or computing power through other countries.
The impact on Nvidia, which called the diffusion rule “misguided" when former President Joe Biden issued it in the final days of his presidency, is difficult to measure given the rules’ complexity and the possibility that the Trump administration changes it. The prospect for the diffusion rules to go forward appears increasingly likely, though. The Trump administration has sent increasingly hawkish signals, such as its move earlier this month to effectively ban the company from selling the H20 processor designed specifically for the Chinese market. The administration has also focused its trade-war rhetoric more intensely on China, which could make it awkward to back down now, even from a Biden-era initiative.
These moves don’t yet appear to be curbing China’s AI ambitions. Nvidia’s share price slipped 2% on Monday after The Wall Street Journal reported that Chinese tech giant Huawei is preparing to test a new AI chip that could rival Nvidia’s widely used H100 processor. The stock is now down more than 20% this year.
In their current form, the AI diffusion restrictions could add even more constraints to Nvidia’s growth. Nvidia actually generates most of its revenue outside the U.S., which remained the case even after the launch of ChatGPT sparked a surge of direct AI investment by U.S. tech companies.
Bank of America analyst Vivek Arya said nearly a quarter of the company’s sales last year were in non-China countries subject to the restrictions and estimated a revenue haircut of up to 10%. Add in the existing restrictions on China that likely took away 4% of sales, and the effect of the Trump administration’s policies starts to look fairly severe. If Nvidia’s sales track analyst forecasts of about $201 billion in its current fiscal year, that would be a $28 billion hit.
Nvidia could actually weather such a hit in the short term, given its strong financial cushion and still booming demand for AI chips from large U.S. tech companies that are so far keeping their 2025 capital spending plans in place. But in the long run, limiting Nvidia in this way could have ripple effects that end up being more damaging. The rules effectively limit the size of the global market for Nvidia and other American companies, such as Advanced Micro Devices.
This in turn would create opportunities not just for Chinese national champions like Huawei, but also other competitors in South Korea, Japan and Europe—effectively meaning that more global AI revenue ends up in non-American hands.
That would be a worst-case scenario for Nvidia. There is also a range of less severe outcomes. In a report last month, TD Cowen’s policy analyst Paul Gallant said a realistic option is for the Trump administration to “create a path for a larger total number of countries to enter Tier 1," the status that allows for nearly unlimited purchases of graphics-processing-unit, or GPU, chips.
Another possibility is for a deal to be struck. Nvidia has been fighting the diffusion rules since the Biden administration introduced them last year. Chief Executive Jensen Huang visited President Trump at the White House in January and attended a fundraising dinner at Trump’s Mar-a-Lago resort in early April.
That visit came before news of the H20 ban—but also before Nvidia announced a plan to spend up to $500 billion making AI supercomputers in the U.S.
“We struggle to see Nvidia agreeing to make $500 billion in AI infrastructure investment in the U.S. if both the H20 would be banned AND that it would be unsuccessful in killing the AI Diffusion Rule," UBS analyst Tim Arcuri wrote in an April 15 note to clients.
For Nvidia, keeping its global market open may lie in the art of the deal.
Write to Dan Gallagher at dan.gallagher@wsj.com and Asa Fitch at asa.fitch@wsj.com
