How Big Is This Threat for Nvidia in 2025?

The past two years have been big for Nvidia (NASDAQ: NVDA), thanks to its dominance in the artificial intelligence (AI) chip market. The stock roared higher, gaining more than 800% over the period -- and this movement drove Nvidia to a market value of more than $3.6 trillion to temporarily surpass Apple as the world's biggest company. This occurred as quarterly earnings rose in the double digits and triple digits to reach record levels.

Nvidia accomplished this and more not only because of its AI chip strength, but also because of its expansion into a variety of related products and services. The company has built an AI empire, and certain elements, such as enterprise software, could lead to more growth ahead as the AI story develops.

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However, one thing may get in the way of Nvidia's star-studded path -- the government's new restrictions on the export of AI chips. The Biden Administration earlier had placed limits on exports to China and other countries based on U.S. security concerns.

The new framework adds to the initial effort -- and Nvidia even struck back in a statement this week. How big is this threat for the AI powerhouse in 2025?

Image source: Getty Images.

Chip export restrictions

Here's a bit of background on these restrictions. In 2022, the U.S. launched controls on the export of powerful AI chips to China, saying the country was using these items "to produce advanced military systems including weapons of mass destruction." At the time, the U.S. government set limits on the power of chips that could be exported to China -- and Nvidia designed chips specifically to meet the rules. This already represented a headwind for Nvidia, as sales to China represented 14% of data center revenue in the 2024 fiscal year, down from 19% in the previous year.

"Our competitive position has been harmed, and our competitive position and future results may be further harmed in the long term, if there are further changes in the USG's [U.S. government's] export controls," the company wrote in its annual report.

Now, the new framework broadens the number of countries impacted by rules and limitations. As with the earlier restrictions, the framework primarily targets China, but certain other countries -- not included among the 18 key allies and partners of the U.S. -- may face headwinds when trying to access the highest-performance chips. The measures could affect 120 countries, including Mexico, Portugal, and Israel, according to an Associated Press report.

Nvidia struck back in a statement, calling the framework "misguided" and saying it "threatens to derail innovation and economic growth worldwide."

The Trump administration's decision

How bad is this news for Nvidia? It's important to consider that this plan won't be enforceable for 120 days, offering President-elect Trump and his administration time to consider it.

Trump has expressed concern about competition from China and promised tariffs on imports from the country, but it's too early to predict what he'll decide regarding the AI diffusion restrictions. Still, the arrival of any new administration offers potential for a turnaround on this issue or at least changes that could make the situation easier for Nvidia and other U.S. technology companies.

It's also key to keep in mind that Nvidia and its peers are among the country's biggest companies powering the economy today. They, along with the Semiconductor Industry Association, are on the same team when it comes to the situation -- and are making their opinions heard on the issue. This may influence Trump and his team. It's likely that there will be at least some discussion of the matter and potential adjustments here and there to favor innovation and earnings growth.

All this means that, yes, this isn't the greatest news for Nvidia and peers at the start of the new year. But I wouldn't expect it to heavily weigh on the stock in 2025 or beyond because it seems reasonable to expect discussion and compromise.

Plus, Nvidia has shown its ability to be proactive. For example, it's designing chips for China to respect new restrictions. So there's reason to be confident about the company's ability to manage this next stage of the AI chip export story.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.