Nvidia Faces Dual Challenges: DeepSeek and Donald Trump

One notable absence from the lineup of tech billionaires at Donald Trump’s presidential inauguration on January 20th was Jensen Huang, the CEO of Nvidia. Instead of making a public appearance, Huang opted for a quieter approach, meeting with Trump at the White House just over ten days later. The timing was significant—earlier that week, Nvidia, the dominant supplier of artificial intelligence (AI) chips, had seen its market value plummet by $600 billion following the release of advanced AI models by DeepSeek, a rising Chinese competitor. While DeepSeek’s impact on Nvidia’s market position was certainly a concern, Huang was likely just as focused on Trump’s potential response to the upstart rival.

Despite the initial market shock, Nvidia’s stock has largely recovered. DeepSeek’s cost-efficient approach to model-building briefly cast doubt on the long-term demand for Nvidia’s high-end graphics processing units (GPUs). However, expectations remain strong for Nvidia’s financial performance. On February 26th, the company will report its earnings for the quarter ending in January, and analysts predict a staggering 73% year-over-year increase in sales—hardly an indicator of weakness.

The U.S. Government’s Response to DeepSeek

While Nvidia has rebounded from its stock decline, the looming threat now comes from U.S. government policy. The Biden administration had already taken steps to slow China’s AI progress by restricting exports of advanced chips and chipmaking tools, as well as limiting American investments in Chinese AI firms. Now, reports suggest the Trump administration may impose even tighter export controls. During his confirmation hearing, Howard Lutnick, the new Secretary of Commerce, signaled a hardline stance on technology sales to China, specifically highlighting Nvidia’s role in supplying DeepSeek. “It’s got to end,” he declared.

Sales to China accounted for 15% of Nvidia’s revenue in the quarter ending in October. Joseph Moore, an analyst at Morgan Stanley, predicts the uncertainty surrounding these sales will prompt Nvidia to issue conservative revenue guidance for the year ahead. “We feel that there will be some incremental export controls in the wake of DeepSeek,” he noted.

Potential Trade Restrictions

The U.S. government has two primary levers it could use to further restrict Nvidia’s sales to China.

1. Additional Limits on Direct GPU Sales

Previous chip export restrictions led Nvidia to develop the H20, a scaled-down GPU specifically for the Chinese market. Now, the Trump administration is reportedly considering banning sales of that chip as well. Dylan Patel of SemiAnalysis, a semiconductor consultancy, suggests Nvidia has already begun suspending production of the H20 in response to this threat, despite having produced over one million units in the past nine months. Nvidia is actively lobbying against the restrictions, arguing that the H20 offers no greater AI capabilities than gaming GPUs already sold in China. Nevertheless, reports indicate that the H20 is widely used in China for AI applications.

2. Blocking Access to GPUs via Third Countries

Another potential move is tightening controls on indirect access to U.S. chips. Shortly before leaving office, the Biden administration introduced the Framework for AI Diffusion, a regulation designed to curb the illicit smuggling of GPUs to China and prevent Chinese firms from leveraging American AI infrastructure through third-party server farms. If not overturned, this rule will take effect in mid-May.

This policy would limit many countries’ access to advanced GPUs, effectively binding them to American regulatory oversight and pushing them toward partnerships with U.S. cloud-computing giants like Alphabet, Amazon, and Microsoft. Nvidia strongly opposes the rule. The company publicly criticized the Biden administration’s move as an overreach that stifles innovation and weakens American competitiveness. Privately, Nvidia argues that restricting AI access for over 150 countries could alienate key allies and inadvertently push them toward Huawei, China’s own emerging AI chipmaker. Gregory Allen of the Center for Strategic and International Studies (CSIS) believes the Trump administration is likely to retain the framework’s core principles while making modifications to suit its own agenda.

Nvidia’s Strategy Amid Political Uncertainty

Jensen Huang is likely working behind the scenes to influence the administration’s stance. While he may not be part of the tech elite closely aligned with Trump, he maintains strong connections. In the lead-up to the election, Huang publicly praised Elon Musk—a close Trump ally—for rapidly building a massive data center for xAI, Musk’s AI venture. If the Trump administration’s hawks push for harsh restrictions on AI chip exports, Huang may hope that Musk, with his growing influence in Washington, can mitigate the impact on Nvidia.

The Bigger Picture: Navigating Geopolitical Tensions

The geopolitical landscape has already created significant challenges for Nvidia in China. While U.S. sanctions on Huawei have weakened one of Nvidia’s strongest competitors in the country, trade restrictions have hurt Nvidia’s own sales as well. Two years ago, revenue from China accounted for over 20% of Nvidia’s total; today, that figure has declined. Meanwhile, China’s government is aggressively investing in domestic semiconductor development, further complicating Nvidia’s long-term prospects in the region.

Despite its efforts to maintain favorable relations in China—perhaps explaining its vocal criticism of U.S. export controls—Nvidia has still found itself caught in the crossfire. In December, Chinese regulators launched an anti-monopoly investigation into the company, widely seen as retaliation for U.S. chip restrictions.

The Future of Nvidia: Global Expansion and Innovation

As uncertainty over its China business persists, Nvidia’s growth increasingly hinges on markets elsewhere. The company continues to dominate the AI chip industry outside China, maintaining its lead through frequent hardware and software upgrades. It is currently transitioning to a new generation of GPUs known as Blackwell, further solidifying its technological edge.

The recent rebound in Nvidia’s stock price suggests investors share Huang’s confidence. Many believe that DeepSeek’s advances, by making AI models more affordable, could ultimately increase demand for Nvidia’s hardware rather than diminish it. Major U.S. cloud-computing firms have signaled ongoing investment in AI infrastructure, although some concerns remain. A recent note from analysts at TD Cowen, published on February 21st, reported that Microsoft had canceled some data-center leases in the U.S., though the company insists it remains committed to its $80 billion infrastructure investment this year.

While Nvidia continues to thrive, both in terms of market dominance and innovation, it faces an increasingly complex global environment. Whether it can successfully navigate the twin challenges posed by DeepSeek and shifting U.S. trade policies remains to be seen.