Is China’s artificial intelligence sector finally taking the plunge and shifting away from Nvidia Corp. in favor of homegrown chips?
Fresh exuberance for domestic alternatives suggests the inflection point has arrived. Blowout earnings from Cambricon Technologies Corp., reports that Alibaba Group Holding Ltd. is testing new AI hardware, and Beijing spurning the return of Nvidia’s made-for-China H20 chips to the market indicate the industry is finally getting on board with the government’s push for self-reliance.
The Information reported that even leading startup DeepSeek is using chips from Shenzhen-based Huawei Technologies Co. to train some models while still using Nvidia’s for its largest and most powerful ones.
Such a paradigm shift has long been Beijing’s priority, even if companies prefer Nvidia’s superior offerings. But the more momentum this movement gains, the more the transition accelerates as developers build and deploy AI models on top of domestic hardware. This allows local firms providing the technology to boost their capacity as well as research and development.
And this time it’s not just blunt government directives pushing the homegrown ecosystem. “Sanctions accelerate. Policy supports. But market realities do the most to force companies to move very quickly,” China tech analyst Rui Ma noted in a post on X. The frenetic pace of AI in the post-DeepSeek era means it makes good business sense for Chinese firms to do what they do best: compete.
International attention has focused on Huawei’s efforts to catch up with Nvidia. The main reason Cambricon has attracted so much hype is because it’s one of the few publicly listed Chinese chipmakers. But these are far from the only players trying to fill the void. Shanghai-based startups such as Enflame and MetaX are also striving to seize the opportunity.
There are reasons to temper the excitement. The companies themselves have offered reality checks. Cambricon warned investors that the stock price may have deviated from “the company’s current fundamentals.” It dispelled rumors about new products in the pipeline and stressed ongoing threats to supply-chain stability. Its shares tumbled the most since April on Thursday, after rallying sharply in August. In June, Huawei founder Ren Zhengfei downplayed the company’s chip achievements in a front-page interview with the People’s Daily, saying they “lag behind the US by a generation.” MetaX highlighted the systemic struggles facing China’s chipmakers in a pre-IPO regulatory filing.
Another big question mark hanging over the industry is whether production can be ramped up enough to meet the demand. The Financial Times reported that China is seeking to triple the total output of AI processors next year, but building advanced fabs takes time and equipment currently barred from the mainland by US-led export controls. Analysts have estimated that shipments from Cambricon will total some 143,000 units this year. The US has said that Huawei isn’t capable of producing more than 200,000 advanced AI chips in 2025. Nvidia, by comparison, sold about 1 million H20 chips in 2024, though this figure might also represent stockpiling ahead of expected clampdowns. (The H20s, the most advanced processors Nvidia is allowed to sell in China due to export restrictions, were briefly barred earlier this year before Washington said sales could resume.)
But even without access to the top Nvidia offerings, Chinese AI giants have shown remarkable prowess at optimizing their models to run on older generation tech from Huawei and Cambricon. Despite the H20 uncertainty, “China remains well placed to make further progress in AI,” Bloomberg Intelligence analysts said in a note. US tech giants have focused on besting top benchmarks and Artificial General Intelligence, where access to the most advanced computing resources is required. It’s not clear how much having the best matters for President Xi Jinping’s AI+ initiative to deploy the technology throughout broad swaths of society, if there are good enough tools to get the job done.
Ultimately, the biggest test to see if Beijing is truly over Nvidia is how it will respond to the possibility of the US loosening export controls on the company’s more powerful processors. As AI chips have become bargaining leverage in the trade war, it’s very plausible that China is still trying to squeeze even better technology from Washington.
On the most-recent earnings call, Chief Executive Officer Jensen Huang said that there is a “real possibility” that the US government will allow Nvidia to sell its more-advanced Blackwell processors in China — which significantly outperform the H20s and the top homegrown chips. Beijing might be able to encourage companies to shun the H20 in favor of domestic alternatives, but rejecting the next-generation technology will be a tougher pill for its AI sector to swallow if it wants to keep pace with Silicon Valley.
Either way, the palpable vibe shift over the past week has made it look more difficult than ever for Nvidia to maintain its foothold in the China market over the long run.
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