Two superpowers, one chip race

In the latest sign that GPU demand has officially gone off the rails, two men were detained yesterday for attempting to illegally smuggle $50 million worth of Nvidia chips to China and other locations.

Talk about poor timing: The news comes just a day after Nvidia secured approval from the US government to sell its H200 AI chips to China, on the condition that the US gets a 25% cut of the revenue. The chips aren’t Nvidia’s most powerful, but they are still better than the H20 chips the US originally approved for sale to China in August.

President Trump framed the approval as a win, saying it will “support American Jobs, strengthen US Manufacturing, and benefit American Taxpayers.” And it’s clearly good news for Nvidia, which has said demand from China could amount to roughly $5 billion in orders per quarter. But the bigger picture tells a different story.

Containing Chinese challengers

In the race to create the best and brightest AI, China holds advantages in power capacity and engineering talent, while the US dominates in computing power. Allowing H200 exports narrows that gap: America’s advantage could fall from roughly 10x to 5x next year once shipments begin, according to the Institute for Progress.

But by letting China buy US chips instead of cutting them off entirely, Washington may be trying to keep Beijing reliant on American technology and slow the rise of Chinese challengers. After all, prior restrictions haven’t halted China’s innovation—if anything, the country’s AI hardware and software makers have risen to the challenge of international import curbs.

For example, Huawei rolled out multiyear plans in September for chips and supernodes it says will rank among the world’s most powerful. Meanwhile, Moore Threads, China’s “Nvidia equivalent,” surged more than 400% in its IPO debut last week.

Beijing is reinforcing this domestic AI push: restricting certain Nvidia imports, expediting semiconductor IPO approvals, and rolling out incentives to build homegrown GPU alternatives. New entrants like Enflame and Biren Technology are moving in to meet the billions of dollars in GPU demand that Nvidia alone can no longer serve.

Whether it’s sanctioned exports or backdoor smuggling, one thing’s clear: the US–China AI race is far from over.—SY