Nvidia's one weak spot isn't getting better

• US government restrictions have made it tough for Nvidia to grow its business in China.
• Nvidia has cut prices for its H20 chip in China amid competition from local chipmakers.

Nvidia is facing steep competition from chipmakers in China.

The US chipmaker was forced to slash the price for the H20, its most advanced chip designed for the Chinese market, amid abundant supply, Reuters reported.

In some cases, the H20 chip is selling at a 10% discount compared to rival Chinese chipmaker Huawei's Ascend 910B, the most powerful chip made by a Chinese company.

Nvidia began selling the H20 earlier this year in response to restrictions introduced by the US government — which ban the company from selling its most powerful chips in China.

The H20 chip is one of three AI chips Nvidia designed for the Chinese market. Its compute power has been pared back from Nvidia's other models to comply with US regulations on exporting advanced semiconductors to China, according to the semiconductor blog SemiAnalysis.

That has made it harder for Nvidia to compete in China.

One distributor in Beijing told Trendforce, a technology industry intelligence outlet, that demand for the H20 chip hasn't been significant due to its relatively low cost-to-performance ratio and the availability of Chinese alternatives. China has also asked tech giants to forgo Nvidia's chips in favor of domestically made AI chips, though it's unclear how strongly that directive has been enforced.

Along with e-commerce giants like Alibaba, only five state or state-affiliated buyers have expressed interest in buying the H20 chips in the past six months, Reuters reported. Meanwhile, over a dozen buyers have shown interest in Huawei's 910B.

Another distributor, based in the southeastern city of Shenzhen, told Trendforce that the H20 aims to solidify Nvidia's presence in the Chinese market — but the demand might not be there. Analysts told Reuters that the H20's performance will be a major factor in its China business.

"Nvidia is walking a fine line and working on a balancing act between maintaining the Chinese market and navigating US tensions," Hebe Chen, a market analyst at IG, told Reuters. "Nvidia is definitely preparing for the worst in the long term."