Everyone's been obsessing over semiconductors in the AI arms race with China. Turns out we might be watching the wrong bottleneck entirely.

Investor Kevin O'Leary dropped a warning on Friday that should make policymakers uncomfortable: China isn't winning the AI race because of chip production. It's winning because it can keep the lights on.

The Real Constraint Isn't Silicon

Sharing a clip from his Fox News appearance on X, O'Leary pointed to electricity as the critical factor determining who dominates artificial intelligence. And right now, China's ability to build power infrastructure at lightning speed is giving it an advantage that export controls can't touch.

"The Chinese are kicking our a** right now. In AI, they are," O'Leary said in the video.

He didn't mince words on X either: "I'm neck-deep in building data centers right now, and let me tell you something uncomfortable: China is crushing us in power generation for AI. Not chips. Power."

His argument is straightforward. China can add massive amounts of power capacity without the regulatory gauntlet that American projects face. "When the Supreme Leader wants more capacity, he builds a coal plant. Simple. No 5-year regulatory nightmare," O'Leary explained.

Meanwhile, America's electrical grid is "tapped out" and slowing AI growth, he said. Data centers need enormous amounts of electricity, and if you can't power them, your cutting-edge chips are just expensive paperweights.

Big Tech Backs Tighter Controls Despite Nvidia's Opposition

O'Leary's comments come as Washington debates the Gain AI Act, which would impose stricter limits on exporting advanced AI chips to China and other countries under arms embargoes.

In a notable shift, Microsoft Corp (MSFT) has publicly endorsed the legislation. Amazon.com, Inc. (AMZN), through its cloud division, has reportedly signaled private support to Senate staffers as well.

That puts both companies at odds with Nvidia Corp (NVDA), which supplies the AI processors that power their cloud infrastructure. It's a rare public split between major tech players who usually maintain a united front on trade policy.

Nvidia fired back with a statement calling the proposed restrictions a "self-defeating policy" rooted in science fiction. The company argued it already avoids selling restricted products to adversaries and warned that limiting global access could undermine President Donald Trump's AI Action Plan.

Nvidia's China Business Has Evaporated

Nvidia CEO Jensen Huang has been sounding similar alarms about China's potential to catch up in AI development. He pointed to the same factors O'Leary highlighted: cheaper power and a regulatory environment that moves fast.

Earlier this month, Huang warned that China could win the AI race thanks to low-cost, heavily subsidized electricity and a fast-moving regulatory system that doesn't bog down infrastructure projects.

The stakes are already evident in Nvidia's own numbers. Huang revealed earlier this year that the company's market share in China collapsed from roughly 95% to almost nothing after U.S. export rules tightened and Beijing banned foreign AI chips from state-funded data centers.

Despite these challenges, Nvidia remains a powerhouse. MarketDash's Edge Stock Rankings place the company in the 98th percentile for Growth and 93rd for Quality, underscoring its dominant position relative to industry peers.

The debate over AI competitiveness has focused heavily on semiconductors and manufacturing capacity. O'Leary's perspective suggests the real constraint might be more mundane—and harder to fix quickly. Building new power plants in the U.S. takes years of environmental reviews, permitting battles, and community opposition. China doesn't have that problem.

Whether you think that's an unfair advantage or simply a different set of trade-offs, it's shaping up to be a major factor in who leads the next wave of AI development.