Analyst Warns Of Major Nvidia Setback in China As Huawei Advances AI Chip: 'It's Pretty Much Game Over For Nvidia in China' - Alphabet (NASDAQ:GOOG), Alphabet (NASDAQ:GOOGL)

Brian Colello, Morningstar’s equity strategist, expressed a bearish outlook on Nvidia’s China business, while maintaining a positive view on its prospects in developed markets.

What Happened: Colello suggested that Huawei’s competitive threat is a significant obstacle for Nvidia, especially in China. He stated, “I think it’s pretty much game over for Nvidia in China.” Colello, while speaking to Yahoo Finance pointed out that U.S. restrictions, including the ban on Nvidia’s H20 chip, have hindered Nvidia’s ability to sell high-performance chips in China.

Nvidia has reportedly recorded a $5.5 billion write-off tied to its China business, with further details expected in its earnings report later in May. Colello believes Nvidia's operations in China have steadily deteriorated, calling the H20 ban "the final straw” of Nvidia being able to sell anything halfway decent into China. Colello also expects Huawei’s products to be higher quality than Nvidia’s H20 chips.

While Nvidia faces challenges in China, Colello remains optimistic about the company’s short-term prospects in developed markets like Europe and the U.S., highlighting strong demand from hyperscalers like Google GOOG GOOGL and Microsoft MSFT. He is confident that U.S. companies will not slowdown their AI investments even if there is a potential recession in the future.

Why It Matters: Huawei has begun testing its new AI chip, the Ascend 910D, which is designed to rival Nvidia’s flagship processors. This move comes even as U.S. sanctions continue to stifle China's semiconductor ambitions.

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Furthermore, the Trump administration is reportedly considering significant changes to Biden-era restrictions on AI chip exports. These changes could further tighten access to Nvidia’s H100 chips.

These developments could potentially impact Nvidia’s market position in China and its overall growth. While Huawei's current offerings don't yet signal Chinese superiority in AI, Colello noted that China's rapid progress—exemplified by Huawei and models like DeepSeek—raises concerns about its ability to catch up faster than anticipated. However, strategist Colello remains confident in U.S. tech dominance with Nvidia continuing to lead in innovation.

Colello also pointed to projects like Stargate to highlight the significant investment opportunities in U.S. AI infrastructure. He named Nvidia as one of Morningstar's top picks, emphasizing its limited vulnerability to new tariffs and its dominant position in the AI sector.

Benzinga's Edge Rankings highlight strong momentum and growth rankings for Nvidia in the 64th and 95th percentiles, respectively. Curious how other stocks stack up? Click here to uncover growth and momentum scores for top stocks.