China is rapidly shifting its AI chip market as it seeks to reduce dependence on foreign technology and build a self-reliant domestic industry. This change is reshaping the competitive landscape for major U.S. chipmakers, such as Nvidia and AMD. The move is driven by geopolitical tensions, U.S. export controls, and China’s push for industrial independence, highlighting the growing link between technology and national security.
China aims to increase the share of locally made AI chips to 55% by 2027, up from just 17% in 2023. This surge comes as U.S. export restrictions limit China’s access to advanced chips such as Nvidia’s A100 and H100 models. Domestic companies, such as Huawei’s HiSilicon, Cambricon, and Hygon, are developing competitive alternatives, including Huawei’s Kirin 9000C and the C930 RISC-V-based CPUs. The Chinese government has also increased scrutiny of foreign chips, citing security concerns like potential backdoors in Nvidia’s H20 chip. As a result, Chinese firms prioritize local solutions even when performance gaps exist. For example, Huawei’s Pura 70 smartphones now include 33 domestically sourced parts, compared to only five imported components previously. This shift signals China’s long-term goal to reduce reliance on U.S. technology in critical sectors.
On the U.S. side, export controls have heavily influenced chip sales to China. The Trump administration recently eased restrictions on Nvidia’s H20 and AMD’s MI308 chips but introduced a 15% revenue-sharing agreement with the U.S. government. This model, which replaced an initial 20% demand, allows these mid-tier chips to be sold in China but reduces profit margins for U.S. companies. Nvidia, which earned around $17 billion from China in 2024, faces potential quarterly profit cuts of hundreds of millions due to this fee. While the deal maintains U.S. access to a key market, it raises legal and strategic concerns. Critics argue that the revenue-sharing may violate the U.S. Constitution’s Export Clause, which prohibits export taxes. There is also fear that other U.S. technology firms may be pressured into similar agreements, further shrinking their profitability. For investors, the main risk lies in policy uncertainty and how future administrations might alter or expand these rules.
This evolving landscape presents both risks and opportunities. China’s push for domestic AI chips intensifies competition and challenges U.S. firms’ dominance. Meanwhile, regulatory hurdles and financial arrangements add complexity to the market. Investors should monitor the growth of China’s domestic chipmakers alongside U.S. government policy changes, as these factors will shape the future of AI semiconductor markets where technology, trade, and national security intersect.
