China Threatens Nvidia With Its Own Company

There has been a long dance between China and the United States over whether Nvidia Corp. (NASDAQ: NVDA | NVDA Price Prediction) can sell its best chips to the world’s second-largest country by gross domestic product. The process has triggered an insult. Secretary of Commerce Howard Lutnick said the U.S. would only sell China its “fourth best” chips.

The Chinese reaction was meant to show the Trump administration that it would build the world’s best AI chips without any outside help. That may have happened. Shares in Moore Threads, China’s answer to Nvidia, started to trade on the Shanghai exchange with a burst as the stock rose 500% on the first day of trading.

The Huang Argument

At the center of the artificial intelligence (AI) chip negotiations has been Jensen Huang, the head of Nvidia and perhaps the most powerful man in the industry. By some measures, his chips have a 92% market share. The company’s financial results and stock price would support that. The stock is up 1,250% in the past five years, far outpacing the S&P 500’s 85% gain. Nvidia is the world’s most valuable company by market cap at $4.46 trillion.

In its most recent reported quarter, Nvidia’s revenue rose 62% year over year to $57 billion. Per-share earnings rose 67% to $1.30. Nvidia expects results just as strong in the current quarter.

Huang argues that China’s AI advances could be as fast as those in the U.S. China and the U.S. are in a race for AI supremacy. Some experts think China may already be close to parity. The Wall Street Journal compared it to the Cold War. The paper noted, “Beijing’s strategy is to throw everything it has at the problem.”

Huang’s argument is simple: if Nvidia supplies China’s chips, it will not develop any on its own. The U.S. has a ban on sales of Nvidia’s most powerful chips to Chinese interests. China has created access to the chips through third countries.

Is It a Threat?

It is notable that the Moore Threads IPO only raised a little more than $1.1 billion. That is a tiny amount compared to the sum Nvidia invests in R&D each year. The sum would be small enough to cause experts to think it is not sufficient to make a dent in Nvidia’s industry leadership. However, if the Chinese government backs this and other companies, and given the Nvidia chip ban, the next few years could present a problem for the AI chip leader.

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