The Trump administration is reportedly considering intensifying the chip sanctions imposed on China by the previous Biden administration. This enhancement could affect Nvidia’s H20 chips, designed specifically for the Chinese market to adhere to U.S. export restrictions. According to sources referenced by Bloomberg, these discussions about expanding sanctions are in the preliminary stages, as the administration is still in the process of staffing key positions.

Earlier this week, Nvidia suffered a significant financial hit, with its market value plunging by $589 billion on Monday following the unveiling of its DeepSeek AI technology. The company’s stock price fell from $142 to $118 and then slightly recovered to $127. However, following reports of potential further sanctions, Nvidia’s stock again fell by 6.9% to $122 per share.

Despite ongoing U.S. restrictions, China remains Nvidia’s largest market. The company is projected to earn about $12 billion from sales of AI GPUs to China in 2024, even though it now only sells the Nvidia H20—a significantly modified version of its H200 AI chip. Sales of these sanction-compliant chips have seen a quarterly increase of 50% since their launch.

The possibility of a ban on even these compliant H20 chips looms, particularly after the capabilities demonstrated by China using less advanced hardware through the release of DeepSeek. Howard Lutnick, nominated for Commerce Secretary under Trump, hinted at a stringent approach to semiconductor regulations during his confirmation hearing. While he did not delve into specifics, his comments suggest a potential tightening of trade restrictions against China, which could adversely impact Nvidia’s financial health.

Nvidia has argued that these restrictions are counterproductive for the American economy. The company claims that such measures push Chinese firms towards self-sufficiency and the development of independent technologies that could surpass Western capabilities. Additionally, these restrictions undermine American businesses that depend significantly on Chinese markets, cutting into revenues that could support further research and development to advance U.S. technological leadership. Even the former U.S. Commerce Secretary Gina Raimondo has expressed skepticism about the effectiveness of hindering China’s advancement in chipmaking.

Nvidia still has an opportunity to argue its position at the White House before any new bans or sanctions are implemented. The company must carefully balance pleasing Washington policymakers while maintaining its high revenue streams.