Op-ed: What Nvidia wouldn't say about China chip sales reveals everything you need to know

Nvidia's latest earnings again highlighted its extraordinary success and undeniable market power: $46.7 billion in revenue, up 56 percent from a year earlier, and net income of $26.4 billion. Its forecast for the next quarter came in at $54 billion, broadly in line with expectations. But one omission stood out — no revenue from its China-specific H20 chip. That absence spoke volumes. America's most valuable semiconductor firm is struggling to maintain footing in China just as one of China's own champions, Cambricon Technologies, is surging.

The problem for Nvidia is not with its business fundamentals, and certainly not with the performance of its chips, notwithstanding the "backdoor" allegations. Despite heavy losses tied to U.S. export restrictions, the company has thrived and is now racing to meet extraordinary demand for its new Blackwell Ultra platform for U.S. and allied data centers. There is no doubt that it can lead the global AI era without taking on the baggage that comes from its infatuation with China. Yet instead of drawing confidence from that strength, Nvidia has chosen to continue bending over backwards to appease China's party-state, hoping to hold on to a shrinking slice of the Chinese market.

Reports now suggest the company is developing a new "B30A" chip — more powerful than the H20 but engineered precisely to skirt the edge of U.S. export limits. This sends the wrong signal. Rather than staying focused on its future outside of China, these moves reinforce the perception that Nvidia, despite repeated warnings and the clear trajectory of China's industrial policy drive toward techno-indigenization, simply cannot give up its China dream.

Remember what BYD did to Tesla

What is widely known by now is that Beijing has a tried-and-true playbook. Foreign firms are tolerated until local champions are ready, then gradually displaced. Already, China's regulators are pressing companies like Alibaba, DeepSeek, and ByteDance to justify why they continue to seek out Nvidia products instead of using domestic chips from rapidly emerging Chinese champions. Buying foreign hardware openly is becoming a political liability.

Enter Cambricon Technologies, what many believe to be one of China's alternatives to Nvidia. In the span of just two years, its shares have multiplied roughly tenfold, turning the company into a market darling and another visible symbol of Beijing's drive for technological self-reliance. Investors are not merely chasing profits — they are also betting on that political playbook winning out yet again. Cambricon's swing into profitability this year has only amplified the frenzy, with its next-generation Siyuan 690 processor — still under development — being touted by analysts as potentially closing in on Nvidia's H100 performance and likely outclassing the restricted H20 chips once meant to anchor Nvidia's position in China.

The excitement around Cambricon has less to do with technical benchmarks than with a narrative about nationalistic pride and domestic momentum. Chinese developers such as DeepSeek are already signaling that their latest models will be optimized for "home-grown chips soon to be released." That creates an ecosystem where Cambricon is not just tolerated but embraced, its products now used to amplify the story of national progress. And because Cambricon has been on the U.S. Commerce Department's Entity List since 2022, every uptick in its stock price and every hint of technological parity is seen inside China as defiance of Washington — a breakout moment celebrated much the same way DeepSeek was earlier this year.

The forces undermining Nvidia's position in China are the same ones propelling Cambricon's rise, and echo a notable list of recent U.S. business casualties in the Chinese market. Think what BYD did to Tesla, Huawei to Apple, or DeepSeek to ChatGPT.

Every time U.S. officials boast of keeping "the best stuff" out of China, the nationalist case for Cambricon and other local champions grows stronger. For Nvidia, the danger is real. Clinging to its China dream, kowtowing to Beijing, does not guarantee an open market. It only strengthens the playbook and highlights the contrast between a foreign supplier treated with suspicion and a local firm celebrated as the embodiment of resistance and resilience.

That point was underscored on Nvidia's latest earnings call. Executives admitted that no H20 sales went to China in Q2, and that they are assuming none in Q3 because of "geopolitical issues."

Neither Nvidia's CFO nor CEO spelled out those issues, but the signal is obvious: China's rejection is political, not necessarily technical. Xi Jinping has already set the course. At the April Politburo study session, he made clear that indigenization of AI hardware and software is now a national priority. No matter how much Chinese developers may want the "best chips," the party and security apparatus will decide what they can buy — and the private sector will comply.

Trump Commerce Sec Howard Lutnick has not helped

If Nvidia needed any reminder of how politics can drive market decisions in Beijing, it should look at Washington's own role in accelerating that outcome. Commerce Secretary Howard Lutnick's July remarks that the U.S. strategy was to sell China "not the best stuff, not the second-best stuff, not even the third best…just enough to get [China] addicted" was the worst possible messaging at the worst possible time. His ill-chosen words turned what might have been a quiet and gradual market adaptation into a nationalist cause supreme. Security agencies, bureaucrats, and corporate rivals like Huawei and SMIC seized on the insult to argue that reliance on Nvidia is both unsafe and humiliating. Instead of buying H20s under the radar, Chinese firms now face political pressure to reject them altogether and buy local.

This convergence of market momentum, political endorsement, and national pride is no accident. China's AI Plus initiative aims to integrate AI across nearly every sector by 2030. The plan pairs adoption benchmarks with massive investment in domestic chipmaking, high-bandwidth memory, and national computing clusters. Cambricon has become the visible proof-point that China thinks it needs to show it can build an ecosystem independent of U.S. technology, thereby mooting the impact of being blacklisted in Washington.

For investors, it is fair to say that Nvidia will remain the gold standard in performance for the foreseeable future, but in China, perfection and performance benchmarks are not the only things that matter. What matters most to the political and security establishment, if not the private sector, is having "good enough" homegrown technology that frees Beijing from dependence on foreign suppliers and anchors its project of techno-indigenization. Even if Cambricon's Siyuan chips never rival Nvidia's Blackwell Ultra, they may be sufficient to carry China's AI development forward — and sufficient is all the party needs.

That makes Nvidia's effort to appease both Beijing and Washington a situation in which the chip giant is serving two masters and satisfying neither.

—By Dewardric McNeal, managing director and senior policy analyst at Longview Global, and a CNBC contributor