Chinese cloud providers have been big buyers of U.S. artificial-intelligence hardware. Jefferies analysts are upbeat that the trend can continue despite trade-war pressures.

Nvidia Corp. is expected to introduce a new chip for the Chinese market that gets around the latest U.S. trade restrictions.

Despite concerns over whether China will be able to keep up its artificial-intelligence spending in the face of tightening U.S. restrictions on advanced chip sales, some analysts are staying bullish and see the country’s data-center demand growing. That could be good for Nvidia Corp., as it’s expected to launch a new chip to get around the latest rules limiting its China sales.

Jefferies analysts said in a note on Monday that capital-expenditures growth for China’s cloud-service providers exceeded that of U.S. counterparts in the first quarter of the year. Even after taking into account that Chinese companies likely stockpiled chips late last year to get ahead of U.S. trade restrictions, the capex-to-cloud-revenue ratio of Chinese cloud providers “is in fact catching up with those of U.S. peers,” the analysts said. 

First-quarter results showed that combined, capex for Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. — China’s three largest tech firms, nicknamed BAT collectively — was up 100% from the previous year “and has exceeded that of its U.S. peers 6 quarters in a row.” And the ratio between BAT’s capex to total sales is trending up, the analysts said. The first quarter likely saw lower quarter-over-quarter growth, however, due to chip stockpiling in the fourth quarter of last year, the analysts said.

One reason BAT’s capex-to-cloud-revenue ratio has been able to surpass that of companies in the U.S., the analysts said, is because the three big U.S. cloud providers have large noncloud revenue sources. Alphabet Inc. has the Google search engine, Amazon.com Inc. has its retail business and Microsoft Corp. has its Windows software, among other products. 

“But we believe part of the computing capex for these U.S. CSPs is also spent to support their core business, in addition to third-party cloud customers,” the analysts said. “We believe Chinese CSPs would also spend aggressively on AI to support their core businesses.”

Therefore, Jefferies analysts expect “significant growth upside” in Chinese companies’ long-term AI spending, and they forecast AI hardware capex to reach 1 trillion yuan by the end of the decade.

Meanwhile, the analysts don’t see the new U.S. rule, which effectively banned Nvidia from selling its H20 chips to Chinese customers, curbing this AI capex trend in the long run, even as it could cause some short-term disruption. According to Chinese data-center service provider VNET Group Inc., the country “has stockpiled enough chips to support data center growth” until at least the first half of 2026, the analysts said. 

But as Nvidia touts an $8 billion loss in China revenue for the fiscal second quarter due to the ban, Jefferies said industry checks point to the company introducing another, less-powerful version of its chips that complies with the U.S. restrictions in July. The chip is expected to be based on its Blackwell architecture, which Nvidia is shipping to U.S. tech firms.

On Nvidia’s fiscal first-quarter earnings call last month, Chief Executive Jensen Huang said the company doesn’t have any immediate plans to develop new products for the Chinese market to comply with shifting U.S. rules — but that the company is “thinking about it.”

At the same time, the analysts said Chinese AI companies are improving AI models to use graphics processing units meant for gaming for AI inferencing — another way of getting around chip constraints. As Chinese tech firms continue to innovate around restrictions, the market could see a similar reaction to DeepSeek, which launched a competitive AI model in December that it said used less of Nvidia’s weaker and formerly export-controls-compliant H800 chips to build.

After the Chinese AI startup released another competitive model — its R1 reasoning model — in January, tech stocks plunged as massive AI spending by major U.S. tech companies was thrown into question. Shares of Nvidia plummeted, wiping away $600 billion in market value in just one day, as investors thought about the billions of dollars megacap tech firms are currently spending on the company’s cutting-edge chips.

And China’s foundry capacity for 7-nanometer chips is expected to ramp up in the second half of this year into next, Jefferies analysts said, although there will be “some short-term hiccup in yield” as companies turn to homegrown chip-making equipment. That, along with Nvidia’s expected new offering, should help meet demand.

“Therefore, we remain confident China’s AI demand for data centers would continue to grow,” Jefferies said.

Huang himself sees China’s AI market growing to $50 billion in the next few years, and he said not being able to sell there would be a “tremendous loss.”

“The local companies are very talented and very determined, and the export controls give them the spirit, energy and the government support to accelerate their development,” Huang said in May at Computex 2025 in Taipei, Taiwan, according to the Wall Street Journal. 

However, Richard Windsor, founder of research firm Radio Free Mobile, said in a note after the company reported earnings that Nvidia “would be best served by giving up on the China market in its entirety,” because Chinese customers will replace it in its absence, and evolving export controls will make it harder for the company to build and sell competitive products. Nvidia may be better off focusing on ample opportunities in other markets, he said. 

“Furthermore, I continue to believe that Jensen is not thinking long-term enough about his China business as the $50 [billion] market he thinks he is going to lose is very likely to be made up elsewhere,” Windsor said. 

Windsor previously said that China will stay years behind the U.S. in regards to chip technology, and that China will likely not catch up as a legitimate chip supplier to other countries.

Other analysts on Wall Street are also upbeat about Nvidia’s prospects beyond China, as the company accelerates the ramp of its Blackwell AI platform. Additionally, supply-chain issues with Nvidia’s server racks seem to be resolving going into the second half of this year. 

The company’s results showed that Nvidia’s business is accelerating despite restrictions on its China sales, Morgan Stanley said — and the products driving that growth “seem durable.”

“Everything should get better from here,” the Morgan Stanley team wrote.