Nvidia remains unfazed by the emergence of DeepSeek
On the day of President Trump’s inauguration, Nvidia’s Chief Executive Jensen Huang was not positioned alongside the president at the Capitol, unlike numerous other tech magnates. An Nvidia official stated that he was not invited, which prompted his visit to Beijing. During a recent gathering, Huang expressed to customers and employees his unwavering dedication to the Chinese market, as captured in a recording. Nvidia’s strategy involved continuing to supply chips for artificial intelligence in China, while deliberately limiting their performance to adhere to increasingly stringent restrictions set by Washington.
A week later, Nvidia’s stock price plummeted by 17% in a single day, following an announcement from the Chinese firm DeepSeek, which claimed to have made significant advancements in its AI capabilities utilizing less sophisticated Nvidia chips. A segment of investors viewed the progress as undermining the market in the West for Nvidia’s premier offerings. Nevertheless, Nvidia was aware that engaging in operations in China carried inherent risks, as the nation has been recognized by both political factions in Washington as the foremost global competitor to the United States.
The Silicon Valley firm contends that catering to Chinese consumers bolsters its revenue, thereby sustaining its competitive edge in the global AI landscape. Company officials assert that it is preferable to secure substantial payments from customers for Nvidia’s chips and the accompanying software, rather than risk them seeking out a Chinese alternative. Over the last three years, Nvidia, with a valuation nearing $3 trillion due to its supremacy in AI chip production, has engaged in a concerted effort to maximize its business operations in China. With each escalation of restrictions imposed by the U.S. on its sales, Nvidia swiftly pivoted to engineer new chips that complied with the regulations while maintaining a competitive edge—much to the chagrin of national-security officials in Washington tasked with oversight.
Nvidia characterized DeepSeek’s models as additional proof of the capability of its chips to drive progress in AI, asserting that firms propelling the industry forward will persist in requiring substantial quantities of the most sophisticated chips. It stated that DeepSeek’s progress did not alter its perspective on the regulation of its chips. “We meticulously comply with all export restrictions,” Nvidia stated, further noting, “Our achievements create opportunities for American industry on a global scale.” Huang, the CEO of Nvidia, engaged in discussions with Trump on Friday at the White House. Sources acquainted with the dialogue indicated that the two, convening for the inaugural occasion, engaged in a conversation regarding AI policy. A source indicated that during discussions regarding DeepSeek, Huang conveyed to the president that public reactions were exaggerated.
Nvidia has called on the Trump administration to reconsider the restrictions imposed by the Biden administration, which tightened limits on international sales of advanced AI chips shortly before the latter’s departure from office. “The United States achieves success via innovation, competition, and the global dissemination of our technologies—not by withdrawing behind a barrier of governmental overreach,” stated Ned Finkle, Nvidia’s vice president of government affairs.
The confrontation between Nvidia and regulatory authorities raises a pivotal issue in Washington concerning the dynamics between the United States and China, the two foremost economic giants globally. Should the significant business relationships with the ruling Chinese Communist Party be severed due to perceived threats? Is it feasible for the two nations to maintain trade in high-tech sectors while simultaneously vying for global dominance. “Our open society will consistently surpass the inflexible surveillance state enforced by the CCP, yet if we continue to permit the CCP to appropriate our ideas and technological advancements, it will ultimately prove inconsequential in maintaining our lead,” asserted Trump’s national security adviser, Michael Waltz, in a book released last year.
At a confirmation hearing on Wednesday, Howard Lutnick, nominated by Trump for the position of commerce secretary, expressed his opposition to American technology facilitating innovation in China. “Nvidia’s chips,” he stated during the hearing, “power their DeepSeek model.” The conclusion is inevitable. For Nvidia, the struggle is more about long-term positioning than immediate sales figures. In the four quarters concluding in October, Nvidia reported sales totaling $113 billion, with approximately 12% derived from China. The potential for substituting those sales from China is significant, given the robust demand in alternative markets.
Nvidia adopts a long-term perspective, anticipating that China will remain a significant market for the foreseeable future. As the foremost manufacturing hub globally, the nation is poised to be at the forefront of AI-driven sectors, including robotics and autonomous vehicles. Nvidia representatives indicated that engaging in business within that market is essential for maintaining relevance, particularly as artificial intelligence capabilities become integrated into commonplace devices frequently manufactured in China. Nvidia’s commitment to its operations in China is evident in its efforts to retain its 4,000 employees, who are highly sought after by competitors.
Xie Weide, a headhunter in China, noted that certain companies are extending offers to Nvidia engineers and marketing managers that include salaries double their current compensation. For several months, Xie has been frequenting a coffee shop adjacent to Nvidia’s Shanghai office during lunchtime, engaging with employees in an effort to recruit them for Huawei and another Chinese firm. During the recent assembly in Beijing, Nvidia’s Huang highlighted that the company’s annual employee turnover in China stood at a mere 0.9%, significantly lower than the global average of 2% for Nvidia. “Once one becomes part of Nvidia, departure is rare,” Huang remarked. “Joining Nvidia means embarking on a long-term journey together.”
The CEO embarked on a tour of various Chinese cities to commemorate the Lunar New Year, participating in staff gatherings where he engaged in dance to contemporary pop music. He engaged with AI-driven robot startups that have garnered acclaim in state media. “Over the past twenty years, we have played a pivotal role in the modernization of one of the most significant markets and nations globally,” Huang conveyed to his Chinese audience. “We take great pride in our involvement within your ecosystem.”
The conflict between Nvidia and U.S. regulators concerning its operations in China intensified in late 2022, coinciding with the emergence of OpenAI’s chatbot ChatGPT, which sparked widespread interest in artificial intelligence. Nvidia produced the most advanced chips for training AI models, prompting leading companies such as OpenAI, Google, Amazon, Microsoft, and Meta to compete vigorously for their acquisition. Since late 2022, Nvidia’s stock has surged tenfold, rising from approximately $12 per share to around $120 per share currently, positioning the company at times as the most valuable in the world by market capitalization.
Chinese enterprises aspired to lead in the realm of AI, notably DeepSeek, which was at the time a largely obscure research division within a Chinese hedge-fund operator. During a presentation at an Nvidia conference in March 2022, a hedge fund executive detailed the acquisition of 10,000 of Nvidia’s advanced A100 chips. The firm was the pioneer in China to assemble a server utilizing those AI chips, he stated. The Biden administration sought to limit China’s access to technology, acknowledging the inevitable military applications of AI, including its potential to direct a smart drone in identifying optimal targets. As tensions escalate regarding Taiwan, the United States is keen to prevent Beijing from securing a strategic advantage in any potential conflict.
In October 2022, the initial export controls aimed at AI chips were implemented, encompassing the A100s acquired by DeepSeek—thereby initiating a regulatory cat-and-mouse dynamic to curtail the proliferation of these chips. Nvidia’s engineers promptly introduced a chip known as the A800—a modified version of the A100 designed to comply with U.S. regulations, which Nvidia intended to market exclusively within China. The advancement occurred with remarkable rapidity in a sector where the creation of new chips typically spans several years.
Nvidia subsequently introduced the H800 chip, tailored for the Chinese market as a variant of its next-generation H100 AI chips, which have also faced effective export restrictions to China. Analysts noted that the new chips adhered to Washington’s restrictions yet employed alternative strategies in other regions, allowing them to nearly match the performance of leading products available at that time.
China’s leading technology firms, notably ByteDance, the parent company of TikTok, have committed billions of dollars to procure chips that Nvidia has tailored specifically for the Chinese market. In a research paper published in December, DeepSeek reported utilizing approximately 2,000 H800s to train the model that powers its chatbot. Nvidia’s approach to marketing altered semiconductors has drawn ire from U.S. officials, who expressed frustration over the company’s perceived lack of cooperation in mitigating China’s advancements in artificial intelligence. Critics contended that Nvidia was not adhering to the intended spirit of the regulations, whereas the company maintained that it was in compliance with the letter of the law.
“That’s not productive,” remarked then-Commerce Secretary Gina Raimondo in December 2023. “Our objective for national security is to ensure that your chips contain no proprietary AI components.” Later that month, she moderated her critique, describing Nvidia as a responsible player and emphasizing the necessity of permitting the company to maintain its competitive stance globally. In October 2023, the United States implemented new regulations mandating a license for Nvidia’s A800 and H800 chips, which are specifically designed for the Chinese market. Nvidia has once more introduced a new series of chips that adhere to regulatory standards, featuring a model designated as the H20.
Initially, Chinese consumers expressed apprehension regarding the successive downgrades of Nvidia’s chips. However, by the previous year, it became clear to those engaged in the AI sector in China that the H20 remained sufficiently robust for AI applications. Chinese competitors like Huawei faced challenges in manufacturing chips that could rival Nvidia’s offerings in adequate volumes. Nvidia has incorporated an extra AI-focused memory unit into its chip package to enhance the capabilities of the H20, according to sources. Due to advancements, China’s H20 has reportedly surpassed Nvidia’s H800 chip in specific contexts, despite the necessity to adhere to recent U.S. restrictions, according to sources.
In the interim, Chinese consumers dissatisfied with the H20 have sought alternative means to obtain more sophisticated Nvidia chips, either by tapping into remote computing resources or by importing the chips into China through intermediary nations. DeepSeek appears to have successfully accumulated an estimated 50,000 Nvidia chips, comprising a blend of H800s, H20s, and the prohibited H100s, as indicated by supply-chain data gathered by Dylan Patel, the founder of the industry analysis firm SemiAnalysis.
OpenAI announced that it is examining the possibility that DeepSeek utilized its models in the training of its chatbot. Nvidia contends that the success of DeepSeek was not contingent on a substantial quantity of chips, but rather on the ingenuity of its engineers and the utilization of OpenAI’s sophisticated models to forge a competitive alternative. It indicated that it views DeepSeek as an unavoidable “fast follower.” DeepSeek failed to provide a response to inquiries for comment.
Officials within the Biden administration were aware of the unfolding situation, yet they frequently found themselves at odds regarding the appropriate course of action. Officials aligned with export-oriented enterprises confronted national-security advocates concerned that China might surpass the United States in the competition for artificial intelligence supremacy. Certain officials expressed a desire to swiftly impose restrictions on Nvidia’s operations in China, as reported by sources acquainted with the deliberations. However, there were instances where actions were postponed due to the apprehension among certain officials regarding the potential impact on revenue for Nvidia and other major American corporations.
As the Biden administration approached its conclusion, discussions among White House and Commerce Department officials centered on imposing restrictions on Nvidia’s H20 chips, recognizing their increasing significance in the evolution of AI, as reported by sources with knowledge of the situation. In the end, the officials failed to reach a consensus on the implementation of a ban before the deadline approached.
Acquaintances of Huang, the founder of Nvidia, characterize him as an entrepreneur passionate about the creation and commercialization of advanced technological products, while expressing a disinterest in entanglements with governmental policy discussions. The CEO, originally from Taiwan and raised in the United States, only established a formal government-relations office in Washington following the escalation of the export-control dispute. Nvidia and the Biden administration maintained a veneer of civility in their public interactions; however, tensions escalated following the November election. The administration was poised to implement a definitive set of measures imposing restrictions on the export of chips to third nations that might act as intermediaries for China.
As preliminary versions of the regulations made their way through Washington, Nvidia convened a gathering of prominent technology leaders in December, where it encouraged them to advocate against the proposed rules, according to sources familiar with the discussions. The semiconductor manufacturer contended that imposing additional regulatory burdens on exports to numerous nations worldwide would stifle the entire sector and undermine the United States’ competitive edge. Several entities, Oracle among them, aligned with Nvidia in presenting that argument to the United States. The new regulations progressed regardless.
In the past few weeks, Nvidia’s sales representatives have informed Chinese clients that the H20 chips will continue to be accessible in China, as the recent restrictions imposed by the Biden administration do not prohibit their sale. A faction within Congress is currently pushing for the implementation of such a ban. In a letter issued on Thursday, the leaders of the House Select Committee on the Chinese Communist Party advocated for stricter regulations on Nvidia, which may include a potential ban on H20. Lawmakers indicated that DeepSeek’s significant reliance on Nvidia chips underscores the necessity of regularly revising export controls. The final decision rests with Trump, whose administration includes both proponents of a hardline stance towards China and those attuned to the commercial interests of American exporters like Nvidia.
Several Chinese technology executives have expressed apprehension regarding potential restrictions on access to H20s, citing a lack of immediate alternatives. This sentiment mirrors a statement made by DeepSeek founder Liang Wenfeng last year, who identified his primary challenge not as securing funding, but rather as acquiring advanced chips. Simultaneously, the executives noted that Chinese firms are once more exploring alternatives, including relocating computing-intensive operations abroad where access to Nvidia chips is less constrained.
China is striving to maintain its companies’ access to Nvidia chips while simultaneously encouraging them to seek out domestic alternatives whenever feasible, as reported by executives. In December, Chinese regulators indicated that Nvidia could have breached local antitrust laws, a gesture seen as a signal that Beijing possesses leverage should Washington adopt a more aggressive stance.
