Dan Niles: Giving China Access to Advanced Chips Could Slow AI Progress

San Francisco, CA – July 11, 2025 – In a surprising twist on the ongoing US-China technology rivalry, prominent investor Dan Niles of Niles Investment Management has put forth a controversial argument: allowing China access to America's most advanced chips, particularly those from industry leader Nvidia (NVDA), could paradoxically slow down China's artificial intelligence (AI) progress. Niles, known for his astute market observations, expressed a bullish outlook on Nvidia, emphasizing that his positive sentiment holds true even without factoring in potential sales revenue from the Chinese market.

Niles's perspective challenges the prevailing narrative that restricting chip access is the most effective way to impede China's technological ascent. He suggests that by providing access to cutting-edge components, the US could inadvertently foster a dependency that, in the long run, might hinder China's indigenous chip development efforts. This counterintuitive argument posits that if Chinese companies can readily acquire high-performance chips from the US, they might have less incentive to invest heavily in the arduous and expensive process of designing and manufacturing their own comparable semiconductors. This could lead to a reliance on foreign technology, potentially slowing their overall AI innovation trajectory.

Beyond the strategic implications of chip access, Niles also touched upon other critical facets of the US-China tech race. He highlighted the Pentagon's recent investment in MP Materials (MP), a key player in rare earth elements. This investment underscores the US government's strategic focus on securing critical supply chains for advanced technologies, recognizing the foundational role of rare earths in everything from electric vehicles to advanced defense systems. The move by the Pentagon signals a broader effort to reduce reliance on foreign sources, particularly China, which currently dominates the rare earth market.

The US-China AI Tech Race: A Complex Landscape

The US-China AI tech race is a multifaceted competition encompassing hardware, software, talent, and data. While the US currently holds a lead in advanced chip design and manufacturing capabilities, China has made significant strides in AI applications, data accumulation, and the deployment of AI in various sectors, including surveillance and smart cities. The debate over chip access is central to this competition, with policymakers grappling with how to balance national security concerns with economic interests and the potential for unintended consequences.

Niles's argument introduces a nuanced dimension to this debate. Instead of a simple binary of restriction versus access, he proposes a more complex strategic calculus. If China becomes overly reliant on US chips, any future disruptions to that supply could have a more significant impact on their AI development than if they were forced to develop their own capabilities from the outset. This long-term strategic view contrasts with the immediate goal of preventing China from acquiring advanced military or surveillance capabilities through cutting-edge chips.

Investment Implications for Nvidia and Beyond

For investors, Niles's bullish stance on Nvidia, independent of China sales, reinforces the company's strong fundamentals and its dominant position in the global AI chip market. Nvidia's continued innovation in GPU technology, its expanding software ecosystem, and its diversification into areas like data centers and professional visualization provide multiple growth avenues. Investors should consider Nvidia's robust product roadmap and its critical role in the broader AI revolution.

Furthermore, the discussion around MP Materials highlights the increasing importance of critical minerals and supply chain resilience. Companies involved in the extraction, processing, and refinement of rare earth elements and other strategic materials may see increased investment and government support as nations prioritize self-sufficiency in key technological inputs. This trend could present opportunities for investors looking to capitalize on the foundational elements of the new tech economy.

Ultimately, the US-China tech rivalry is a dynamic and evolving landscape. Niles's insights offer a fresh perspective, suggesting that the most effective strategies may not always be the most obvious ones. For investors, understanding these intricate geopolitical and technological currents is crucial for navigating the market and identifying long-term growth opportunities.