Is China Behind the Nvidia Scandal?

19 minutes ago

7 min read

Jensen Huang has resigned, Nvidia’s stock is falling, and one question isn’t being asked: who benefits? Not American investors, not the US government, and not the West. China no longer needs Nvidia the way it once did, and Nvidia is the central pillar of America’s AI buildout. If that pillar shakes, America’s AI race slows down. There’s no proof Beijing is behind the scandal. But if it is, it’s a new kind of warfare that turns the private lives of executives into a national security issue.

Expert Perspective: Analysis by Abishur Prakash ("Mr. Geopolitics"), one of the world's leading geopolitical speakers and author of six books, advising companies on the fractured world. Prakash delivers keynotes in Toronto, NYC, London, Dubai, Warsaw, and worldwide.

Full transcript: Abishur Prakash ("Mr. Geopolitics") on whether China is behind the Nvidia scandal

There is one question that is not being asked regarding the Nvidia scandal, which is who benefits from a disrupted or even destabilized Nvidia.

Now, as it stands right now, Jensen Huang has resigned, Nvidia shares are falling. And when it comes to who benefits, it's clearly not US investors. It's clearly not American 401(k)s or pension plans, which are also being affected by the sell off and the drop in Nvidia's stock. It's clearly not the U.S. government or the West.

So that leads to two questions, or two possible answers. Which is, number one, was this entire revelation that Jensen Huang was having an affair with a Chinese spy or alleged Chinese spy? Was this the result of stellar investigative journalism? Or, number two, was this the operation of a foreign adversary of the United States?

The Clues

Now, consider the data that stands before the world. Alice Huang is in China right now. She's decided to return to Beijing in the middle of a scandal where the U.S. government is accusing her of being a Chinese state asset. So she's returned to the very nation that she's being accused of spying for.

Consider that Nvidia H200 chips, the main chip that Nvidia wanted to export to China. Even in the middle of U.S.-China trade fights and U.S. export controls, the H200 chip was Nvidia's objective to sell to the Chinese market. Right now those chips are amassing in Hong Kong. They are not being allowed into China. And they haven't been for some time. In fact, ever since the U.S.-China truce, the Busan truce, the détente, if you will, this was not really a détente; the détente is a weapon, but ever since this truce on paper, China hasn't purchased a single H200 chip, according to data. Not a single Nvidia H200 chip has been purchased by China, even though the U.S. gave Nvidia the green light.

America's AI Pillar Shakes

Now, take those two together. And then there's the third piece, which is perhaps the most significant. Who benefits from a disrupted or destabilized Nvidia? And as it stands right now, the biggest winner is China.

Because Nvidia is at the center of America's AI buildup. All of the hundreds of billions of dollars that the U.S. government and U.S. businesses have earmarked for the AI buildout and AI rollout has Nvidia technology at the center of it. In fact, a stable Nvidia, an Nvidia that's constantly innovating, and an Nvidia that's constantly able to produce and supply the technology, is the most critical part of the U.S. AI build out, in tandem with U.S. government, support and U.S. government approval. And that central pillar is now shaking. Nvidia's future is unknown.

Now, again, I'm well aware that it's only been 72 hours. It hasn't been weeks. Jensen Huang has just resigned. The fallout is only intensifying.

But in the coming weeks, if Nvidia customers start to shift their orders to AMD or somebody else. If Nvidia stock continues to plunge, and as it stands right now, some investors are saying they don't know where the floor is, meaning they don't know how low Nvidia stock could go. If the next Nvidia earnings report shows that sales are down, and according to some sources in Asia, Nvidia has already slowed new chip orders. If all of this is to be taken on face value and is to be believed either that it's happening or it's possible that it could happen. Then Nvidia truly is disrupted. And so is America's AI build out. Because there is no other alternative in terms of scale and technology for the United States, and for that matter, for the entire West, than Nvidia.

And if America's AI rollout begins to slow down, or is disrupted because of what's happening with Nvidia and potentially what else is revealed next. Then China gains immense power. China's AI buildout is not slowing. China's AI sector is not affected, and China is not reliant on Nvidia as it once was.

China Doesn't Need Nvidia

Because that's the central argument against the idea that China is behind the Nvidia scandal. The central argument is that, well, hasn't China been the biggest beneficiary of Jensen Huang, hasn't Nvidia been pushing to increase technology trade with China? Yes, although much of Nvidia's push, at least in the past two, three years, is not going to be looked at, not through the lens of whether this was a genuine business objective, but whether this was the pursuit of a compromised Chinese asset that's going to be on the table now.

But going back to that argument, the Chinese aren't reliant on Nvidia chips or not buying Nvidia chips as they once were. But simply, China does not need Nvidia the way it once did. China is quadrupling down on sovereign chips. China is pursuing other options. And again, H200 chips, the primary Nvidia export to China, is not even entering China. Chinese government is not allowing these chips into the country. They're simply amassing in piles in Hong Kong.

And we've all seen the Chinese state objectives, in 2027, 2028, where auto companies, telecom companies throughout China have to replace foreign chips with local chips. China does not need Nvidia as it once did. And that's why Jensen Huang himself has said several times, that his business in China has fundamentally changed. It's no longer making the kind of revenue he was making a few years ago, because China's sovereign push is actually having an impact on the revenue of US technology companies in the Chinese market.

So if China does not need Nvidia. If China doesn't really depend on Nvidia technology as it once did. And China's central foundation for the next phase of its AI buildout depends on sovereign technology and sovereign chips. And China is competing with the United States, which is ahead. What does China do? How does China try to disrupt America's AI buildout? How does China gain a lead or at least gain some, reduce the space between China and the United States in this AI contest in this AI competition?

And one of the ways is to disrupt American technology companies that are at the center of America's AI buildout. How you do that depends on the resources you have. In this case, Chinese honeypots. In this case, the old Cold War fears of Soviet sleeper agents being and working in the United States and being activated in a moment's notice. That's alive and well today. And it's not just the Russians the Americans have to worry about. It's the Chinese too. It's the North Koreans.

Now, if China is behind this Nvidia scandal. If this is not the result of investigative journalism, and this is the result of a foreign government trying to disrupt, perhaps the most critical geopolitical and geoeconomic project by the United States, since the Manhattan Project, which is America's push with artificial intelligence. America's pursuit of winning this global AI race specifically regarding China. If that's what's happening, then it fundamentally changes the U.S.-China relationship.

Now, the Trump administration has given China a lot of passes. The fact that the Chinese are supplying Iran with satellite imagery that's being used to actively target American forces in the Middle East, to me, is crossing the biggest red line. The fact that the Chinese have said, they will retaliate against American sanctions on their companies or the fact that North Korea's historic hack of Binance, more than $6 billion of crypto stolen, is more than likely to be funneled into Chinese trading houses, Chinese financial institutions, as North Korea has to convert that crypto into usable assets. Americans are likely tracking all of this. And are well aware of what this means. And yet the White House is giving China a clear pass.

If the intelligence surfaces that China was behind this Nvidia scandal. The Chinese government is actively trying to disrupt or destabilize American technology companies to narrow the space between the U.S. and China when it comes to AI. It comes to this competition to achieve AGI, to control the global AI rollout. If that's somehow proven. And remember, the Chinese supplying Iran with intelligence has been proven. If the next dilemma, the next confrontation, which is over Nvidia, is also proven. Then the spotlight will be on what the U.S. does. How does the White House deal with a China that is more assertive than ever before? With a China that is doing things to the U.S. and the West that it hasn't done before and at this scale in this way?

Who Else Is Compromised?

And maybe an even more important question, maybe an even spookier question, is, who else is compromised in the U.S. and West? Who else does China have dirt on? That China could blackmail that China could use or that China could simply leak. And like dominoes, more US technology companies, more Western critical businesses start to shake. Their sales, their stock, their innovation, all takes a hit.

So this is a new kind of fight. And again, there is no definitive proof that China is behind this. But the fundamental question, which I'm repeating now, is who wins from this Nvidia scandal? Who benefits from this?

And if we put aside the idea that this is just journalists doing their job, reporting, putting the light in the darkness, finding what's being hidden. If you put that aside for a second. Then only one nation benefits from Nvidia being disrupted, from the American AI rollout being disrupted.

And this, if we go with this argument, this represents a new kind of warfare between the U.S. and China. It puts businesses in the spotlight, like never before. It puts the private life of American executives in the spotlight, like never before. In fact, the private lives of American executives is now a national security issue, like never before. It fundamentally changes the U.S.-China relationship.

Now this is just an angle to think about. And whether or not it's true, whether or not there is more intelligence and more data to back it up will be revealed in the coming weeks.

So thanks for listening to today's note. Leave your thoughts below. Do you think China is behind the Nvidia scandal? Don't forget to like and subscribe and talk soon.