Should You Worry About Nvidia's Challenges in China? History Offers a Compelling Answer.

Last year, Nvidia's (NASDAQ: NVDA) cup of good news seemed to constantly be overflowing. The artificial intelligence (AI) chip leader spoke of "insane" demand for its newest chip architecture, delivered quarter after quarter of explosive revenue growth, and scored an invitation to join the Dow Jones Industrial Average (DJINDICES: ^DJI). And the stock posted a 171% annual gain, for the best performance in that elite benchmark.

However, this year has gotten off to a rocky start for this formerly high-flying stock. The company still is seeing enormous demand for its products and generating impressive revenue growth, but external forces have put pressure on share performance. Like other growth stocks, Nvidia has slipped amid concern that President Trump's tariffs may lift prices on various goods, hurting corporate profits and the economy.

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On top of this, Nvidia faces growing challenges in China, a market that represented 19% of the company's data center revenue in fiscal 2023 -- that already declined to 14% in fiscal 2024 due to the U.S. government's controls on technology exports to the Chinese market. This along with new headwinds represent a risk for Nvidia -- but how much should you really worry about these issues? History offers us a compelling answer.

Nvidia's problems in China

Before diving in, let's take a closer look at the problems plaguing Nvidia in China. As mentioned, the U.S. government has put into place controls on exports of advanced computing systems and components -- such as Nvidia's top-performing chips. The government made the move in 2022 to reinforce U.S. national security, and now the newly inaugurated President Trump has taken steps to strengthen this effort rather than loosen up the rules.

The U.S. has added several Chinese companies that it says represent a security risk to a blacklist, meaning they will not receive U.S. tech exports. Additions include subsidiaries of Nvidia customer Inspur Group, though it's important to remember that this isn't entirely new. The government back in 2023 added Inspur to an export blacklist, alleging it had used U.S. products to assist Chinese military efforts.

On top of this, China itself recently made it more difficult for Nvidia to advance in the market. The country announced new energy-efficiency regulations -- and the H20 chips Nvidia designed especially for China don't meet the requirements, according to the Financial Times. The report also said regulators are discouraging local tech giants from ordering them.

Finally, all this opens the door for Chinese competitor Huawei, a company that Nvidia chief Jensen Huang takes very seriously, to advance. Huang said in a Financial Times interview this month that Huawei's presence in AI is strengthening. "We can't assume they are not going to be a factor," he told the newspaper.

How Nvidia handled a big problem

So, with this mountain of negative news, should we worry? Let's look at history, which means Nvidia's handling of 2022 control on exports, for some clues. The company responded by designing the H20, a chip specifically for China, to meet U.S. export regulations. Though data center revenue in China has declined even with the existence of the H20, this hasn't stopped Nvidia's overall revenue from soaring.

In the latest full year -- fiscal year 2025 -- total revenue surged 114% to a record $130 billion. And quarterly data center revenue advanced 93% to a record of more than $35 billion. So, even with declines in China, Nvidia was able to generate massive levels of revenue. And that's translated into stock price gains of 800% over the past two years.

Nvidia quickly found and implemented a solution to that initial problem, which means the company likely will do something similar in regard to the latest roadblock: the energy-efficiency regulations. History shows us Nvidia quickly handled the earlier export challenge in China, and though growth in China still declined somewhat, all this didn't harm Nvidia's overall growth.

Nvidia's biggest source of revenue

Of course, it's true Nvidia today is facing multiple issues in China instead of just one, but considering the strength of the company in other markets, the China headwinds wouldn't stop me from getting in on the Nvidia story. Though Nvidia's China revenue totaled $17 billion in the latest fiscal year, according to Statista, the U.S. remains the company's biggest revenue driver by far. U.S. revenue surpassed $61 billion in the recent fiscal year, up from $26 billion a year earlier. So, the company is seeing significant growth in the U.S., and big tech players' billion-dollar efforts at home to build out data centers and technology should keep this going.

Investors should keep an eye on Nvidia's China situation during quarterly earnings updates, but shouldn't worry too much. Nvidia has shown its ability to generate explosive revenue gains in its major market -- the U.S. -- and history suggests this top company may find a solution to limit the impact of China headwinds on its growth over time.

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