Nvidia (NASDAQ: NVDA) stock continued its slide in pre-market trading Thursday, following a nearly 6% drop on Wednesday after a Financial Times report warned that stricter energy efficiency regulations in China could negatively affect its sales and business in the region.
The National Development and Reform Commission, the Chinese top economic planning body, is urging companies to transition to chips that comply with new energy efficiency standards for data centers and servers. Notably, the Financial Times report suggests that Nvidia’s H20 chip—one of the few models still permitted for sale in China under U.S. export controls—does not meet these new standards.
Moreover, the report claims that Chinese authorities have quietly discouraged major tech firms, including Alibaba (NYSE: BABA), ByteDance, and Tencent, from purchasing the H20 chips. While the regulations were introduced last year, enforcement has so far been lax, allowing Nvidia’s China sales to remain largely unaffected. However, the company could face a major revenue hit if Beijing tightens enforcement.
To address this potential challenge, Nvidia (NASDAQ: NVDA) plans to modify its H20 chips to ensure compliance with Chinese rules. However, these modifications could come at the cost of reduced performance, potentially weakening its competitive edge against Chinese chipmakers like Huawei, which already produce alternative AI chips.
This development comes amid escalating U.S.-China trade tensions. In 2023, the U.S. government imposed strict export controls barring Nvidia and its peers from selling high-performance AI chips to China. These restrictions were intended to slow China’s AI development but have also prompted Chinese firms to shift focus from raw processing power to energy efficiency. The recent launch of DeepSeek, a competitive AI model from China, highlights the country’s ability to adapt to these constraints.
Despite mounting regulatory challenges, China remains a crucial market for Nvidia. The company has seen a surge in local orders this year as major Chinese internet firms race to enhance their AI capabilities. However, this demand is under threat from both Chinese and U.S. regulators. Reports indicate that Beijing launched an antitrust probe against the company in late 2024.
Meanwhile, Washington is reportedly weighing additional measures to tighten Nvidia’s access to the Chinese market. If implemented, these policies could significantly dent Nvidia’s earnings and further entrench the company in the broader U.S.-China tech standoff.
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Kevin Putnam is a financial journalist and editor based in New York. He specializes in editing news and analysis related to U.S. stock market. Read Full Bio
