Nvidia’s Worst Fear is Here
By now you all know about Nvidia CEO and founder Jensen Huang’s situation.
This is the biggest story in the world, so we won’t rehash it. Instead let’s explore the why now.
Back in May of this year, a short seller reported much of the same story in a widely-read report.
They nailed most of the story back then. The relationship with Alice Huang, smuggling GPUs to China, etc.
And few mainstream outlets picked it up.
So why is this suddenly breaking news right now?
To explore it properly, we first need to cover some key aspects of Jensen’s relationship with China.
One Chipmaker to Rule Them All
When an AI company builds a model, they do it on a specific piece of hardware. Nvidia GPUs are the most popular worldwide.
Nvidia has constructed a powerful software system around their world-leading hardware. This is a big part of their moat against competitors.
Builders become experts in the entire Nvidia ecosystem.
Nvidia has become the industry standard. And Jensen doesn’t want anything to interrupt that. Ever. It’s the most profitable product in history.
Nvidia’s greatest fear has always been China building their own competing system. Because we’ve seen what happens when China runs this playbook.
Chinese hardware giant Huawei was one of the first companies to begin building 5G telecom equipment at scale. They rolled it out throughout China first, then began exporting it to the world. Today Huawei is now the largest 5G network equipment provider in the world, by far.
Huawei is doing the same thing with AI hardware. As Jensen said in June of 2025:
“Once [China] has built that entire complete [AI] stack, they’ll export it as quickly as you could imagine.”
China’s AI hardware, mostly made by Huawei, is still not as good or efficient as Nvidia. But they’re cheaper, and improving rapidly. They are set to become an extreme threat to American chip dominance.
Nobody else in the world builds at the scale China does. So now that they’ve entered the AI hardware race, Jensen is concerned. He should be.
For many years, China was happy to buy American equipment. But when Biden cut China off from Nvidia GPUs in August of 2022, they started a Manhattan-Project-scale effort to accelerate their own chip ecosystem.
And they’ve made a disturbing amount of progress.
Discrediting Jensen
Fundamentally, I believe Jensen was right. The American economy would have been better off if we never stopped selling GPUs to China. Sure, a bunch of Nvidia GPUs were smuggled into China, but millions more would have been sold without the ban.
The world’s AI developers would have stayed loyal to Nvidia. It’s a great system, and it works. We forced them to focus on their own.
Without the Nvidia export restrictions, China wouldn’t have had such a strong incentive to build their own. Now they’re building their own advanced chips, which work well, and will be selling them to the entire world within a few years.
The goal was to cripple China’s AI progress. It didn’t work.
As a result, Nvidia and the entire American AI sector is about to get a lot more competition.
Huawei and other Chinese companies have tens of thousands of their top hardware engineers working nonstop on this. Huawei is a particularly strong up-and-coming competitor. They have global scale, and compete directly with:
- Nvidia
- Cisco
- Apple
- Dell
- Tesla
And the disturbing part is, their products are really good. Huawei is a dangerous company to American interests. And all our efforts to kill them have failed. They just keep getting stronger and leaner from the hardship.
The current plan, hatched by the Biden admin, is failing miserably.
Spycraft?
Was the woman Jensen cheated with a spy? I’m skeptical. He’s too smart for that, and even if she was, he’d never reveal secret info to a potential competitor.
The only source on the claim she was “passing information to Beijing” is the New York Times, citing unnamed U.S. officials.
I think she was probably just a middleman, out to make money. Her company, Megaspeed, bought Nvidia GPUs supposedly for use outside China, and made them available to Chinese companies.
Black markets are highly profitable, after all.
Everybody knew GPUs were being smuggled into China, or bought by Chinese companies and operated overseas.
But officials looked the other way, because it was great for Nvidia and the broader U.S. stock market.
At one point, the tiny island of Singapore accounted for 22% of Nvidia sales. Nobody believed a country of 6 million people was buying 22% of global GPUs. That would be completely ridiculous.
Lots of us noticed this fact, and next quarter, guess what? Singapore was no longer listed as a separate line item on Nvidia reports. So the data disappeared.
The smuggling was still happening, of course.
The Real Purpose
Jensen was the biggest advocate for selling U.S. chips to China. He can no longer do that.
They’ll accuse him of being a Chinese plant, a spy, contaminated by exposure.
So it looks like somebody wanted to stop Jensen’s advocacy for tech trade with China. And they probably have, for now at least.
The question is: What’s the plan? China is building their own AI hardware, and it’s pretty darn good. Roughly equivalent to Nvidia’s H200, which was released 3 years ago. That’s still a very capable piece of AI hardware. And China has none of the electricity shortage concerns we do.
So once Huawei and other Chinese players scale up… It’s going to be ugly. They will drive hardware prices into the dirt (like they have with steel, cars, solar panels, and much more).
All because we thought we could cut off China, and cripple their AI efforts. Mission status: failure.
Yes, China is a threat to our AI companies. But attempting to stop them from buying our products has backfired spectacularly. And it will only get worse if we do it again.
Unfortunately, I think the Jensen cheating/spy scandal is an attempt to further restrict exports to adversaries.
It will be bad for American AI companies. Especially Nvidia, which may eventually lose 10% or 20% of its sales. As a result of these policies, NVDA has gained a massive, powerful competitor in Huawei.
In China, a new AI hardware ecosystem is being born. Mostly thanks to short-sighted American trade policies which backfired.
