Nvidia is facing a regulatory setback in China due to new energy efficiency rules for data center chips, which may limit its market access.

These regulations are part of China's broader push to enhance energy efficiency and reduce carbon emissions in technology sectors.

Prominent Chinese firms, including Alibaba, ByteDance, and Tencent, have been advised against procuring Nvidia's H20 chips, posing a significant threat to the company's $17 billion annual revenue in China.

In response to these challenges, Nvidia is reportedly engaging with high-level Chinese authorities and working on modifying the H20 chip to comply with the new regulations.

However, Nvidia's stock has been affected, dropping over 4% in early trading on March 26, 2025, and nearly 15% since the beginning of the year.

Nvidia's main competitor in China, Huawei, is ramping up its production of alternative chips, including the next-gen Ascend 910C, which may rival Nvidia's offerings.

Chinese companies are now required to utilize processors and AI components that meet green standards when developing or expanding their data centers.

The evolving geopolitical landscape, including U.S.-China trade tensions and restrictions on semiconductor technology, is exacerbating Nvidia's challenges.

Despite these setbacks, Nvidia reported a fourth-quarter revenue of $39.3 billion for 2024, surpassing expectations, and anticipates first-quarter revenue of around $43 billion.

The recent news has already caused Nvidia's stock to decline by 5%, indicating market concerns about the company's future in China.

Currently, Nvidia can still sell H20 chips in China until the new green rules come into effect, providing the company with some temporary relief.

The enforcement of these energy efficiency rules could significantly shift the competitive landscape for tech firms operating in China, including Nvidia.