• China’s internet regulator directs ByteDance, Alibaba, and Tencent to suspend purchases of Nvidia’s H20 chips, particularly for government and national-security-related workloads.
  • The U.S. recently allowed resumed exports of Nvidia’s China-compliant H20 chips but imposed an unprecedented 15% revenue-sharing requirement.
  • The move accelerates China’s push toward domestic AI chip alternatives, complicating Nvidia’s position in a critical market.

A Regulatory Squeeze on Foreign AI Hardware

China has reportedly instructed some of its largest tech firms—ByteDance, Alibaba Group, and Tencent Holdings—to halt purchases of Nvidia’s H20 AI chips, according to people familiar with the matter. The directive, issued by the country’s internet regulator, targets sensitive sectors, including government and national security-related projects, signaling Beijing’s intensified efforts to reduce reliance on foreign semiconductor technology.

The restriction comes just as the U.S. granted Nvidia and AMD conditional approval to resume exporting downgraded AI chips to China, albeit with an unusual revenue-sharing stipulation. Under the terms, the U.S. will take a 15% cut of sales from these chips, a move described by analysts as a novel and aggressive policy mechanism to limit China’s access to cutting-edge AI hardware.

Market Reactions and Strategic Shifts

Nvidia’s shares showed early softness following the news, reflecting investor concerns over the company’s ability to maintain its foothold in China, which accounted for roughly 20% of its data center revenue last quarter. The H20, a pared-down version of Nvidia’s high-performance GPUs, was designed specifically to comply with U.S. export controls but now faces additional hurdles from Chinese regulators.

“This is a double whammy for Nvidia,” said one industry analyst, speaking on condition of anonymity. “First, the U.S. takes a slice of their China revenue, and now China itself is blocking usage in key sectors.”

Chinese tech giants, meanwhile, are accelerating investments in domestic alternatives. Huawei Technologies and Semiconductor Manufacturing International Corp. (SMIC) have made strides in developing competitive AI chips, though they still lag behind Nvidia in performance and software ecosystem integration. ByteDance, Alibaba, and Tencent have all begun testing homegrown solutions, according to sources close to the companies.

Broader Implications

The latest restrictions underscore the deepening bifurcation of the global semiconductor market. While U.S. policies aim to curb China’s AI advancements, Beijing is responding by steering critical infrastructure toward local suppliers. This dynamic is likely to persist, with analysts predicting a fragmented AI hardware landscape where interoperability becomes a key challenge.

For now, Nvidia’s H20 chips may still find limited use in commercial applications outside restricted sectors. But with China aiming for majority domestic AI chip adoption by mid-decade, the long-term outlook for foreign suppliers remains uncertain.

*Correction: An earlier version of this article misstated the percentage of Nvidia’s data center revenue derived from China. The correct figure is approximately 20%, not 25%.