U.S. Commerce Secretary Howard Lutnick made it crystal clear on Tuesday: Nvidia Corp. (NVDA) won't be getting any special treatment when it comes to selling advanced AI chips to China. During a congressional hearing, Lutnick addressed the licensing requirements governing Nvidia's sales of its H200 chip, the company's second-most-advanced AI processor, according to a Reuters report.
The licensing terms were crafted in collaboration with the State Department, and Lutnick emphasized they're detailed and absolutely non-negotiable. No wiggle room, no exceptions.
A Deal Stuck in Regulatory Purgatory
Here's where things get complicated. After a trade truce between Presidents Trump and Xi Jinping in South Korea last October, the U.S. agreed to let Nvidia sell AI chips to China. In December, Nvidia CEO Jensen Huang secured what he described as a potential $50 billion opportunity to reopen the company's market presence in China. Formal approval came in January.
But months later, the deal is still waiting for final clearance. The holdup? A national security review that apparently hasn't wrapped up yet. And according to reports, Nvidia hasn't agreed to the proposed conditions designed to prevent China's military from accessing the chips.
Meanwhile, China's industry ministries have reportedly approved the import of the first batch of H200 chips, with initial authorizations granted to three major Chinese internet companies. The National Development and Reform Commission, however, is still hammering out the final terms.
Chinese Companies Aren't Sitting Around Waiting
While Nvidia navigates this regulatory maze, Chinese tech giants are making other plans. Alibaba Group Holding Ltd. (BABA) recently unveiled a self-developed high-end AI chip through its T-Head division, explicitly aiming to reduce dependence on Nvidia. That's not great news for Nvidia's market share projections in China.
The delays are forcing Chinese AI companies into uncomfortable choices. Some are buying pricier black-market hardware, while others are settling for lower-performing domestic alternatives like Huawei's Ascend series. Resellers report that black-market servers equipped with eight H200 GPUs now command a 50% price premium over legitimate channels.
That premium tells you everything you need to know about demand. Global appetite for AI hardware continues to massively outpace supply, making the situation even more frustrating for companies eager to get their hands on cutting-edge chips.
Production Ramping Up to Meet Enormous Demand
Chinese tech firms have placed substantial orders for the H200, with demand far exceeding available inventory. The orders are large enough that Nvidia has pushed Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) to increase production. Nvidia plans to scale up chip manufacturing in the second quarter of 2026 to meet the backlog from Chinese customers.
So here's where things stand: Nvidia has approval in principle, enormous demand from Chinese customers, and production ramping up. What it doesn't have is final regulatory clearance to actually ship the chips. And with Lutnick emphasizing that the licensing terms are set in stone, it seems the ball is firmly in Nvidia's court to accept the conditions as written.
Price Action: Nvidia shares traded up 0.30% at $189.11 during premarket trading on Wednesday.
