China Faces $2.5B AI Chip Supply Gap Despite Nvidia’s Return

China’s booming artificial intelligence sector is set to demand $39.5 billion worth of AI chips in 2025, yet supply is forecast to fall short at $37 billion, creating a $2.5 billion gap, according to Bernstein analysts. This deficit remains even after the U.S. lifted export restrictions on Nvidia’s H20 GPUs, allowing resumed shipments to China.

Before the ban in April 2025, Nvidia had anticipated $22.9 billion in H20 chip sales to China. The restrictions caused an estimated $16.8 billion in lost sales, though Nvidia is now projected to recover $10.5 billion by year-end. Additionally, $2.8 billion in revenue is expected from the upcoming B30 chip launching in September.

AMD is forecast to contribute $1 billion in 2025, while Chinese AI chipmakers have retained $1.5 billion in gains secured during the ban. Although earlier projections showed a $12.6 billion chip supply shortfall, resumed exports and alternative sourcing have significantly narrowed the gap. However, production remains hampered by bottlenecks in advanced packaging and foundry capacity, especially CoWoS technology.

Chinese tech giants like ByteDance, Tencent, Alibaba, and Baidu, which made up over 80% of H20 demand in 2024, are expected to continue dominating in 2025. ByteDance and Tencent alone had placed pre-ban orders for 800,000 chips.

Domestic chipmakers are rapidly scaling, with China’s localization ratio expected to rise from 17% in 2023 to 55% by 2027. Nvidia’s market share is projected to drop from 66% to 54% in 2025, while Huawei is set to grow from 23% to 28%, supported by its Ascend 910C chip.

China’s AI-related capital expenditure will reach $91 billion in 2025, backed by aggressive investments from Alibaba, ByteDance, and government funds. Domestic AI chip vendors are expected to grow at a 112% CAGR through 2027.