Facing escalating U.S. export controls and a dwindling supply of Nvidia processors, leading Chinese technology companies—including Alibaba, Tencent, and Baidu—are actively transitioning to domestically produced AI chips. This strategic shift aims to reduce reliance on foreign technology and bolster China's self-sufficiency in artificial intelligence infrastructure.

The U.S. government's recent tightening of regulations, particularly the restrictions on Nvidia's H20 chip, has accelerated this move. With existing Nvidia supplies projected to last only until early next year, these companies are testing local alternatives such as Huawei's Ascend chips, despite potential U.S. sanctions on their global use. The transition involves significant technical challenges, including adapting from Nvidia's CUDA platform to Huawei’s CANN, which could delay development by up to three months. Companies are adopting a hybrid strategy: utilizing remaining Nvidia chips for AI training while shifting to domestic processors for inference tasks. Huawei is expanding production, though current supply does not meet demand. Other chipmakers like Cambricon and Hygon are also being considered, and some tech firms are investing in developing their own processors. Meanwhile, Nvidia may release a compliant version of its Blackwell chip—without critical features like high-bandwidth memory—as early as July.

Nvidia has reported a 69% increase in revenue during the first quarter of its fiscal year, reaching $44.062 billion, despite U.S. restrictions on selling microprocessors to China. However, the export ban on the H20 chip led to a $4.5 billion charge for excess inventory. The company anticipates an additional $8 billion revenue loss in the second quarter due to these restrictions. Despite these challenges, Nvidia's data center segment saw a 73% year-over-year revenue increase, driven by global demand for AI infrastructure.

The U.S. Department of Commerce's Bureau of Industry and Security implemented new export controls on October 7, 2022, targeting China's ability to access and develop advanced computing and semiconductor manufacturing items. These controls are part of ongoing efforts to protect U.S. national security and foreign policy interests by restricting China's ability to obtain, develop, and manufacture advanced semiconductor technology.

The shift towards domestic AI chips reflects China's broader strategy to achieve technological self-reliance, as outlined in the "Made in China 2025" initiative. This policy aims to comprehensively upgrade Chinese industry, moving the manufacturing base higher up the value chain to become a major manufacturing power in direct competition with the United States.

As U.S. export controls tighten, Chinese tech companies are compelled to accelerate their development and adoption of domestic AI chips. This shift not only addresses immediate supply challenges but also aligns with China's long-term goal of technological self-reliance, potentially reshaping the global AI and semiconductor landscape.