Despite recent warnings from Beijing about security concerns, major Chinese technology companies continue to purchase Nvidia’s H20 artificial intelligence chips, according to industry sources who spoke with Nikkei Asia. The U.S. semiconductor manufacturer, which has agreed to share 15% of its China-generated revenue with Washington to secure export permissions, sees potential for market recovery in China.
Chinese authorities recently called in major tech firms including Alibaba, ByteDance, Tencent, and Baidu, encouraging them to increase their reliance on domestic chip suppliers such as Huawei, Biren, and Cambricon. State media subsequently amplified government concerns about potential security backdoors in H20 chips – allegations that Nvidia has rejected. Additionally, Bloomberg reported that officials cautioned against H20 usage in government-related projects.
However, executives at prominent Chinese companies have indicated that these governmental suggestions are merely advisory rather than mandatory restrictions. One executive revealed that since their projects don’t involve critical infrastructure, they will maintain their use of Nvidia’s chips. Another noted that while Huawei’s Ascend chips receive official praise, they face challenges with efficiency, higher defect rates, and limited production capacity.
Tencent’s President Martin Lau has indicated sufficient GPU supplies for AI training and upgrades, though staff members have expressed worry about potential shortages due to the company’s external GPU rental requirements.
The H20’s competitive pricing has worked to Nvidia’s advantage. A Beijing-based venture capitalist pointed out that H20 chips are more economical than domestic alternatives, considering both purchase price and energy efficiency. The widespread adoption of Nvidia’s CUDA software platform makes it challenging to switch to alternative providers, even when Chinese competitors achieve similar hardware capabilities.
According to a supplier executive, demand for H20 servers has remained stable following Beijing’s advisory. While Chinese cloud service providers continue to purchase Nvidia chips, they are simultaneously increasing their usage of domestic alternatives. Though H20 chips offer lower profit margins and strain TSMC’s limited CoWoS packaging capacity, maintaining H20 sales in China helps Nvidia demonstrate goodwill and preserve market share.
Looking forward, Nvidia is developing a modified version of its Blackwell chip for the Chinese market, featuring GDDR7 memory instead of more advanced HBM technology to comply with U.S. regulations. The performance specifications and potential revenue-sharing requirements with Washington remain uncertain. Some industry observers believe the Trump administration might further ease restrictions.
The Beijing venture capitalist suggested that the H20 situation demonstrates the possibility of negotiating with the Trump
administration, even potentially for unrestricted Blackwell chip sales. However, Bob O’Donnell from Technalysis Research expressed skepticism about Nvidia’s need to offer unrestricted Blackwell chips in China.
Industry analysts maintain that Nvidia’s technological superiority continues to make it an essential supplier. According to O’Donnell, organizations and nations recognize the necessity of developing AI capabilities, leading them to purchase Nvidia chips regardless of preference, as they currently represent the only viable option.
Dan Ives of Wedbush Securities suggested that while political considerations exist, they won’t significantly impede Nvidia’s recovery in the Chinese market. In response to the situation, Nvidia has maintained that its chips are secure and warned that restricting H20 sales would be detrimental to U.S. interests.