How Nvidia’s China Struggle Could Hurt Its Competitive Edge

Nvidia’s ( NVDA ) China business continues to face geopolitical obstacles, which could pose long-term competitive risks for the AI ​​chipmaker.

Ongoing US-China tensions have boosted Nvidia’s sales in what used to be its biggest market. In the company’s most recent quarter, revenue in China, including Hong Kong, fell 45% from a year earlier to about $3 billion, according to Bloomberg data.

And while the Trump administration gave the green light to the sale of Nvidia’s H200 chip to China this week, along with a 25% tax, Reuters reported that China has banned imports of GPUs except in special cases.

So far, Nvidia’s dominant position in the chip market doesn’t seem to have suffered much after the company initially lost access to the Chinese AI market in 2025. It became the first company to have a $5 trillion valuation last fall. Despite the decline in sales in China, its third-quarter revenue rose more than 60% over the period to nearly $57 billion.

But in the long term, the growth of the Chinese commercial sector and the use of domestic chips could erode Nvidia’s lead on the global stage, Wall Street analysts told Yahoo Finance.

They said Nvidia’s dominance in AI software could be affected if Chinese tech developers begin to make progress on open-source alternatives, which would also hurt its lead in hardware.

“It’s a real nightmare scenario,” said port analyst Jay Goldberg.

Much of Nvidia’s competitive edge comes from its software stack. Developers using its AI systems rely on the company’s CUDA platform, which includes a library of proprietary tools that let them efficiently program its GPUs and strengthen the company’s dominance in the chip market.

As companies build on CUDA, the cost of switching to a new software platform is prohibitive, and they stick with Nvidia’s offerings, which are only available if developers are programming on Nvidia’s GPUs. Hence, Nvidia’s prioritization of software is key to maintaining its leadership in the hardware space.

Read more: Are we in an AI bubble? How to protect your portfolio if your AI investments go against you.

While China’s chip suppliers – from tech giants Huawei and Alibaba ( BABA ) to new public players such as Moore Threads and MetaX – have trailed Nvidia in the performance capabilities of their chips, there is a risk that the country’s AI developers will be forced to use their inferior, domestically produced, proprietary software. Open source AI software is usually written to run on different types of chips.