The Flawed "AI Diffusion Rule"
Huang specifically targeted the Biden administration's "AI diffusion rule," which aimed to restrict exports of sophisticated AI chips by categorizing the world into three tiers, with China facing a complete blockade. According to Huang, the "fundamental assumptions that led to the AI diffusion rule... have been proven to be fundamentally flawed."
The U.S. restrictions on advanced AI chip sales to China have had several unintended consequences. They have compelled Chinese companies to procure semiconductors from domestic designers, such as Huawei, and have simultaneously spurred significant investment within China to develop a self-reliant supply chain, reducing its dependence on foreign manufacturers. Huang emphasized that despite the U.S. controls, AI research continues globally, requiring substantial capital investment in AI infrastructure.
Trump's Approach and Nvidia's Plummeting Market Share
Huang praised what he perceives as President Donald Trump's more pragmatic approach to AI policy, stating that by reversing prior restrictions, Trump demonstrated an understanding that U.S. companies are not the sole providers of such critical technology. "President Trump realizes it's exactly the wrong goal," Huang asserted, referring to the previous rules.
The impact of the U.S. controls on Nvidia's market share in China has been dramatic. Huang revealed that since the beginning of President Joe Biden's administration, Nvidia's market share in China has plummeted from a dominant 95% to just 50%. This significant decline highlights the immediate financial repercussions of the export policies on leading American tech firms.
Reportedly, Trump administration officials are considering a shift away from the current tiered approach to chip export curbs, opting instead for a global licensing regime with government-to-government agreements. This new strategy could potentially give the U.S. greater leverage in future trade discussions.
"Intense" Competition in China and Significant Opportunities
Huang pointed out that over half of the world's AI researchers are based in China. The U.S. export controls have effectively forced these experts to rely on local Chinese technology. "Our competition in China is really intense," Huang stated, adding, "They would love for us never to go back to China."
Despite the challenges, Huang estimated the entire AI market in China to be worth approximately $50 billion next year, representing a substantial opportunity for Nvidia. The company continues to innovate, announcing several new technologies and business ventures at Computex aimed at expanding its already impressive $130.5 billion revenue.
Financial Blows and Adaptation Efforts
The export restrictions have already taken a toll on Nvidia's financials. In April, the company disclosed that it would incur $5.5 billion in charges after the Trump administration limited exports of its H20 AI chip to China, a critical market for one of its most popular chips. Earlier this week, Huang provided an even higher estimate, projecting the H20-related revenue damage to be around $15 billion.
In response to these restrictions, Nvidia is actively working on a version of its current-generation Blackwell AI chip. This new iteration will incorporate a less speedy form of memory to comply with the limitations imposed on the advanced memory typically found in AI chips. This adaptive strategy underscores the ongoing efforts by companies to navigate the complex regulatory environment while retaining access to crucial markets.
Escalating Tensions and China's Response
The U.S. actions, including the 2022 Biden administration ban on exports of advanced microchips and related manufacturing equipment to Chinese chipmakers, are part of a broader strategy to hinder China's semiconductor industry and, by extension, its military capabilities. Following these initial controls, Nvidia began developing chips like the H20, designed to push the boundaries of U.S. export limits.
The latest U.S. guidance, warning companies against using advanced Chinese computer chips, including Huawei's Ascend AI chips, has further inflamed tensions. China's commerce ministry on Monday urged the United States to "immediately correct its wrongdoings" and cease its "discriminatory" measures. The ministry asserted that the U.S. actions seriously undermine the consensus reached at high-level bilateral trade talks and vowed to take "resolute measures" if the U.S. continues to "substantially" harm China's interests. The escalating rhetoric signals a deepening and complex struggle for dominance in the critical AI and semiconductor sectors.