Chinese chipmakers like Huawei may benefit if Nvidia falters, but tighter US export controls could deal a far heavier blow to China's AI sector overall; Alibaba and ByteDance rely on Southeast Asian data centers to access US AI chips, and the Megaspeed smuggling probe could prompt Washington to close even that legal loophole

Nvidia CEO Jensen Huang acknowledged an affair with a businesswoman suspected by US intelligence of ties to Chinese intelligence agencies, sending ripples across the global semiconductor industry. [Taiwan NowNews]
Nvidia CEO Jensen Huang acknowledged an affair with a businesswoman suspected by US intelligence of ties to Chinese intelligence agencies, sending ripples across the global semiconductor industry. [Taiwan NowNews]

Allegations that Nvidia CEO Jensen Huang may have been entangled with a Chinese spy could end up backfiring on China's own AI industry, analysts say. While a destabilized Nvidia might hand short-term gains to rivals such as Huawei, tighter US semiconductor export controls triggered by the scandal could inflict far greater damage on China's AI sector as a whole.

Reuters reported Monday (local time) that the scandal surrounding Huang could push Washington beyond questions of corporate governance at Nvidia and toward a broader crackdown on semiconductor exports to China. Particularly at risk, the report said, is the practice by which Chinese companies have tapped the computing power of advanced US AI chips through overseas data centers — a channel that could become a new target for regulators.

Huang recently acknowledged an affair with Alice Huang, a businesswoman whom US intelligence agencies suspect of links to Chinese intelligence. Nvidia's board has launched a probe into whether Huang was targeted by a foreign intelligence service. The company said, however, that no espionage activity or leak of classified information by Alice Huang has been confirmed.

The episode has also introduced management uncertainty at Nvidia, a company with a market capitalization of $4.5 trillion. More than 60 executives report directly to Huang, yet his ownership stake is no more than 3.58 percent. With no differential voting rights in place, he would have little structural protection against removal should the board decide to act. No clear successor has been publicly identified.

Nvidia's troubles could represent a short-term opportunity for Chinese chipmakers. The company's China sales in its most recent quarter reached about $8 billion, nearly double the year-earlier figure and accounting for 8 percent of total revenue. A significant portion of products sold in the Chinese market, however, consists of lower-performance chips and items outside the AI segment.

Huawei and other Chinese chipmakers have been narrowing the technology gap in AI semiconductors used in large language models, robotics and automobiles. By developing their own software and pushing domestic alternatives to Nvidia products, they have been eroding Nvidia's foothold in China's roughly $90 billion AI chip market.

Reuters said, however, that the losses China could suffer from tighter US restrictions may outweigh any such windfall.

Chinese technology giants including Alibaba and ByteDance have long accessed the computing power of advanced US AI chips through overseas data centers in Southeast Asia. The arrangement involves installing high-performance chips — barred from direct export to China — at foreign facilities and leasing the computing resources of those centers.

Under current US rules, direct exports of advanced AI chips to China are restricted, but Chinese companies are not outright prohibited from renting computing capacity at overseas data centers. The arrangement has served as a workaround, allowing Chinese firms to secure the processing power needed to develop AI models without purchasing US chips directly.

That business model has drawn fresh scrutiny, however, after Megaspeed — a Singapore-based data center company where Alice Huang worked — came under investigation by US authorities.

Megaspeed provides cloud services in Southeast Asia using Nvidia's advanced chips and has maintained business ties with Chinese technology companies including Alibaba.

US authorities have been investigating whether some of the Nvidia chips Megaspeed purchased — worth billions of dollars — were illegally smuggled into China. The New York Times reported last year that Megaspeed was under a US government probe over suspected chip smuggling.

Huang said Nvidia had repeatedly audited data centers worldwide but found no evidence of chip diversion. Megaspeed has also denied allegations of illegal chip transfers, and no wrongdoing has been confirmed.

The deeper concern is that the scandal could prompt US authorities to scrutinize Nvidia's customer management and chip distribution networks far more rigorously. Washington has already uncovered cases of advanced chip smuggling through Southeast Asia, and the episode may intensify pressure to strengthen export control enforcement.

Reuters said the US government could move not only to crack down harder on chip smuggling but also to restrict the legal channel through which Chinese companies access advanced AI computing power via overseas data centers.

If that happens, companies such as Alibaba and ByteDance — already unable to purchase US chips directly — could find even their overseas cloud services curtailed. Even if Chinese chipmakers like Huawei gain domestic market share, the overall burden on China's AI industry could grow heavier, hampering technological development across the sector.

The upshot, analysts say, is that even if the Huang scandal weakens Nvidia's grip on the Chinese market, any gains China might reap could be more than offset by a further tightening of US export controls.


sjy@heraldcorp.com