Nvidia's H20 China sales resume after Jensen meets Trump — Zak Kukoff breaks down the security trade-offs

he is he was almost the first guest to do a three repeat three days in a row. He made it two. But uh but we got bored depending on we got bored of the swamp. We got bored with the swamp. Sorry. It happens. That's all right.

Uh but but trade deal today gets a little bit you know uh if this week gets more chaotic on this topic, maybe we'll run the Yeah. You'll get the It's a really perverse incentive. Like I'm really hoping for horrible things to happen so I can come back and complete the repeat here. Yeah. Yeah.

take us from the swamp to the TSMC clean room. It's the swamp meets clean room segment of the show. Uh so kick us off. Uh what how how would you characterize the news exactly what's happening and then we'll go into some analysis. Yeah.

So I think everybody knows the uh H20 chip was specifically designed by Nvidia to meet Biden era restrictions on what chips could be exported to China. Right?

So if you zoom out, you go back to April, the beginning of Trump 2, what you have is basically a little bit of regulatory uncertainty where Nvidia spent a lot of money producing chips that are specifically designed to go to China.

And the admin comes back in April at the last minute and says, "Sorry, you can't export the chips. We're putting in export controls. We're have lensure requirements. " Nvidia takes a huge like $8 billion revenue impairment basically on the cost of producing and not selling this huge swath of chips.

By the way, same time, huge domestic market for H20s, lot of demand, even though they're weaker, lot of demand from startups domestically for the same chips.

Last night, basically between April and last night, you've seen a fullcourt press by Nvidia for the last x number of months where Jensen has been doing a winning campaign, a successful campaign of influence in Washington, trying to make two points exceptionally clear.

First point is we need to export these chips because the same reasons John just said the stack American dominance. We want everyone to standardize so on and so forth. We're losing the biggest market besides America. And also he's made the point of look we can also comply in a more regulatory aggressive way. Right?

So there's the chip security act was introduced in Congress in May. It's working its way through the house. It's moving through the Senate right now.

Basically, Nvidia's helped shape the act aggressively and it says, "Look, we have to make sure that there are ways to track the diversion of these chips, track where they're going, and and this is still up in the air. Is there going to be a kill switch built into these chips?

" This is all to say last night, huge win for Nvidia. Admin comes out and says, "Okay, or really Nvidia comes out and says, admin has told us we are going to be allowed to export these chips to China for the first time with some checks on them, but almost an unfettered way. Markets are up.

Obviously, Asian markets are up quite a bit. Nvidia is up quite a bit on this news. Huge economic win for Nvidia. Huge question mark for the national security folks who say, "Look, there's some real risks with these chips going out. " Is there a uh horse trade going on?

Is this part of a larger bargaining discussion where we even if it's not explicitly Nvidia chips for rare earth material minerals, something else might be happening behind the scenes and this just looks like a little bit of a give from the United States and we might be expecting something or maybe we already got something.

Talk talk to me about kind of the the trade imbalance and just the overall uh deal making that might be happening. It's a really good point. This is the the backdrop of all of this is the trade war between the US and China.

And as much as it is to you and to me and probably to most of the TBPN folks, the most important question is AI. It is one of many questions the admin has to work through. Rare earths by the way is a huge one. Obviously tariffs on a number of American products are a second one. Right?

So the big question is look in April the reason we stopped and we actually put in the admin put in these export controls on Nvidia chips to begin with is in large part because of the ratcheting tension with the United States and China and now part of the reason they're reducing some of these is because the Chinese market is opening up.

We're having great progress. Ironically, Japan has been difficult to negotiate with.

China's been a good negotiator on trade and China really wants these chips to come in because even though they want to wean off Nvidia and go to Huawei as quickly as possible, the H20s are a bridge to get to Huawei's ascend architecture, right?

To get to a home is the meme is the meme that uh we're going to get China dependent on US chips. Is it really just a meme?

like the idea that that the idea that uh they're that that they would just play basically Jensen makes a good point which is like we want them to be dependent on our infrastructure but totally the Chinese government and industry will likely just say okay great we're happy to depend on these for another few years while we ramp up our own Did they promise not to reverse engineer them this time yeah that's your question this time.

Not this time. You know, we've done it we've done it thousands of times now, but this time we'll be different. That's right. Promises this time Charlie Brown can hit the football for once. That's right. Exactly.

So I guess uh you know some of the push back was uh somebody yesterday when when this news broke um uh Walter Bloomberg you know prominent uh journalist uh who always follows you know journalistic standards says Nvidia CEO Hong expects Chinese military won't use uh AI chips which is good thing to expect but uh probably unlikely and then somebody uh quoted it and said the increasing willingness of Jensen Hong The boldly play both sides makes Nvidia one of the most serious threats to US n global technological dominance currently running.

So very uh dramatic uh but but um you know valid point of view for this person to have. How do you think uh have you been surprised at how Jensen can effectively go?

You know, I mean, I wouldn't necessarily play both sides, but you know, this first thing he did when the chip when the the initial H20 ban happened is he flew over there and he started working on a new R&D center in Shanghai. Um, so so he he uh is definitely a capitalist. Um, but uh but it's been interesting to see.

The other factor here is like you're running the most valuable company in the world. So, correct, you do have quite a bit of leverage.

and he almost in some ways he's sort of like holding up the uh you know the entire global economy right a couple bad quarters and everything does it does feel like the good ending that I'm hoping for is like this is a stabilizing force for the world in general and it's not it's not escalatory and even if it's like okay we're going to be competing more on chat bots and tech companies and stuff it's like this moves like the potential for a Taiwan invasion down and like I care a lot more about that than did did Huawei ship a lot I don't know yeah I don't know what's I don't know if I I don't know if I agree with that well I'll say a few things you guys had the Apple and China author on right and so a big part of Apple and China was the whole shtick of Apple comes in says we're going to teach the Chinese how to do what we do domestically in America and then they do it they get better at it and they no longer need Apple and they a domestic market that can produce in the same way.

That's the risk of this export, right? Which is that there's no dependence. Think Jensen's a really talented operator. And by the way, the evidence for that is there was a big letter that went out critiquing his trip to Beijing. Only two senators signed it, right? It was Banks on the right and Warren on the left.

And if you think that they didn't try to get other people in Congress to sign that letter, too, you would be shocked at how few people were willing to go on the record on the anti-NVIDA side of this. Right. Interesting.

The other thing I would say to you is if you think these chips aren't going to get diverted to CCP use, right, to military use, to PLA use, I think that's a little bit of a naive perspective, right? It's impossible to prevent them. Yes.

But my question is, let's just not use them for the thing that's most critical to national security. Yeah. It's like it would be great. It'd be great if if uh it'd be great if they could, you know, set up a local instance of XAI's new uh way. Maybe that would be really ramp that up in China. But okay.

So if uh that I the slight difference that I'm I'm kind of steelmanning here is is uh if Apple goes into China and teaches a bunch of CNC engineers how to mill aluminum to make iPhones and they explicitly demand that those manufacturers have other clients like Huawei for smartphones like they are building up an internal capacity If you're just selling GPUs that are fully assembled, yes, you could tear them down and re rebuild, but um maybe there is enough lock in in the CUDA ecosystem that you can't just just swap out and and issue, John, is here's another headline from the journal just a couple months ago.

Nvidia to set up research center in Shanghai.

So they are setting up and investing in R&D locally and all of that what whatever whatever they know how to do there whatever they learn how to do there it will all disseminate broadly into the Chinese economy and that is just that's just a fact and and if somebody disagrees with that I think it's um and I guess we are we are seeing like cracks in the CUDA ecosystem lock in right now with AMD and and and ROCM and Rockm Um, and so people and and the GPU and Tranium and you know, Amazon and you know, I'm sure I'm sure Meta's thinking about uh custom silicon and and on device inference at at Apple.

So it's like yeah, if you can go and train a frontier model on these H20s and then distill it down and run it on Huawei SNS like that does pull their capabilities forward. Correct. How what is the mooden in in DC around the idea of like AI as being a really impactful military technology right now?

Because for most people it's knowledge retrieval with chatgp and codegen with cursor cloud code windsurf devon and beyond that it's like okay my B2B SAS company is a little bit more efficient and I have some AI agent stuff in there but like people aren't really saying like you know oh it's transforming everything yet.

They're not showing those examples even though that's kind of the narrative concretely besides like yeah you know prompt defeat America you know like like get me from where we are here to there uh and walk me through the mood in Washington around AI as a military technology specifically.

I think people uh on the military side are probably some of the earliest to realize the value of AI for a couple reasons. One um there are already real battlefields today. There are theaters of war where automated decisions are being made that are life and death decisions.

And putting aside the perspective of any of these wars, you know, whether you're looking at Russia, Ukraine, whether you're looking at Israel in the Middle East, there are already real instances today of AI deployed on Frontier live to operate things like drones, to operate things like targeting infrastructure.

Like that's that's happening today. It's not happening in America, but that is happening today. The military is very good at keeping a breast of what our compatriots are doing overseas. That's the first thing.

Second thing I would say to you is the big unlock for a lot of this is the decreasing influence of humans in warfare, right?

Like in 1015 years ago, 20 years ago, if you were an Air Force pilot, that meant you were actually sitting in a plane doing top gun [ __ ] Today, if you're an Air Force pilot pilot, it means you're in Arizona in a cooled warehouse piloting a drone that's like remotely dropping bombs on things.

That unlock, there's no reason that should just be the case. We take them out of the cockpit, put them into the warehouse. The next step on that is why have the human piloting at all, right?

Why not have the autonomous pilot of the drone making those decisions effectively and actually fighting the frontier of war for us where there's no risk at all domestically to our people going into war. So, there's a lot of enthusi maybe enthusiare.

I think the double-edged sword of that is if you're looking at if you're concerned about an invasion of Taiwan, it's far more concerning thinking about a China the PLA army is a couple is not an up-to-date army in many respects.

It's far more concerning thinking about a PLA army that has access to supercomputer clusters built by H20s or other kinds of American ships H20 that is able to more effectively fight in Taiwan rather than a PLA army still fighting conventional warfare where it's never been able to excel.

Yeah, I guess I guess my my push back or like question is just around um like I I hear you that AI is being used on the battlefield.

When I think of AI on the battlefield, I think basic image recognition, look at a satellite image, pick out the missile silos, or if you're a drone, like it's a very very small neural network.

I'm not I I haven't heard a lot of concrete examples of like, yeah, we're running a large transformer-based AI system to make wartime decisions, but at the same time, like that feels like a year away. Yeah. Yeah.

But who who's going to you know what what government is that is that good PR for any military or government in the world? Hey, by the way, we're big we're building the biggest supercluster ever and it's for killing. It's a killing machine. Like, who who wants to go out and say that?

One one question I have is uh is uh the mo is part of why Nvidia's been so effective on lobbying. You mentioned not being only being able to get uh if you can only get Elizabeth Warren to sign your doc. You're in a against uh you're in a rough spot.

Uh but but I saw so in 2023 they spent about half a million on total on lobbying. 2024 they spent this is Nvidia. Yeah. They spent 640,000 but then in Q1 of this year they spent nearly a million. So they clearly ramped it up.

But how much do you think they benefit from just being the largest company in the world and everybody being a Nvidia bag holder some way or another, right? I mean success success, you know, if you if you're the largest company in the world, people want to be a part of that.

Also, look, the number of dollars you spend is not always the proxy for lobbying, right? Like the the hard thing to understand is Jensen is spending more time than probably any other of his peer CEOs. Yeah. Yeah, that's right. Yeah. His travel budget is probably bigger than his lobbying budget. Right.

That That's exactly correct. Why would you need to have 30 registered lobbyists running around when your CEO has a personal relationship? This is the new thing.

This is the the sort of unique aspect of this admin relative to other admins, which is there is a retail politics relationshipbased component of a lot of this work that did not exist before. And if you're Jensen and you can have the great relationship with POTUS yourself, you don't need 30 lobbyists running around.

You can fly to Mara Lago. He's in founder mode. And let's not forget Donald Trump Vasheron historic owner, watch guy Jensen recently spotted with a $1 million Rishard Mill. So, God, I've never felt more poor in my life.

If you if you go to shake a hand in Washington and you got a bare wrist, you might be getting booted, but if you pull up with a hitter, you're going to the moon. What are you guys What are you boys rocking today? What's the I actually forgot to put on my watch. Bare wrist today.

But, but I but I typically I typically wear Vashron Constantine and Oh, very nice. There you go. And Jordy wears the pig royal oak. Uh anyways, anything else we should be looking out for this week?

Only thing I would say to you, look, just John, to your point on who's using actually sophisticated AI, it's not going to be today, at least what's declassified today is not going to be, hey, we blew up this thing. It's a lot of cyber warfare, right?

Like, and as more and more things are about, hey, I want to disrupt the infrastructure of my opponents, their water infrastructure, their electrical infrastructure, their banking and financial infrastructure, that's where LLMs are increasingly being used. What you should look for is look do the chips get exported?

Does this actually happen or does it get flipped again? Right? What are the gunks in the works the requirements on lensure that enter? And then also what happens on chip security act? Does it make it through? Does it actually get through? House great momentum. Senate TBD too early to say.

Okay, that's a great take because I feel like right now today I would be more worried about a CCP controlled large language model, transformer-based large model just spamming the United States internet and social networks with a bunch of AI slop that's slightly anti- capitalist than which is happening.

Cinping querying please invade Taiwan. I don't think that the I don't think that the Xin Ping is in is in uh don't make any mistakes goes please invade Taiwan. Don't make any don't lose any troops. Yeah, make it better. Yeah, make it better.

Um but yeah, I I I I think that that's maybe even even it's more of a clear and present danger today. That's right. Um which by the way, that's Tik Tok. That's Tik Tok today. You're opening up Tik Tok. It's not AI, but it's the soft power component of China's influence over America. Yes.

And being able to and being able to train that model, which is large and is probably the next version does require a lot of NVIDIA chips, was probably trained on a lot of NVIDIA chips, doesn't have the same quantifiable uh, you know, oh, this many parameters, this many gigawatts, this this many tokens went in.

Um, but if it gets 1% better and you have control over it, it it is it is a risk and it should and and it should be considered. Last question. Any any chatter on the ground in uh DC about the Windsurf Google deal or are they going to find out next week on LinkedIn? So funny.

I had a conversation uh over the weekend with somebody who's part of this like Neo Grandian movement, which is to say very sort of Lena Khan orientation. And I asked her, I said, "What are people waking up to this? like what's going on? Why is nobody talking about it? And her only answer to me was stay tuned.

So my only answer to you is stay tuned. Mhm. Ominous. Uh last question on the Tik Tok sale. Poly market has uh Tik Tok sale announced in 2025 at a 35% chance right now. And uh Tik Tok banned in 2025. I guess it was already banned, but it's just like been limbo.

Uh but but have you been hearing anything on or do you have any any any uh interesting takes or insight about uh what might happen to Tik Tok since we just landed on this topic randomly. I don't know prep this. I mean there's no political demand for it.

There's no constituency who's making the argument of because if you were pro Tik Tok ban, you got what you wanted in theory, not enforceable, but you got what you wanted in theory and you've now taken the win and you've gone home.

And if you're anti- Tik Tok ban, what about what about my American flag toing Mag 7 CEO Mark Zuckerberg? Is he not a constituent that wants Tik Tok banned? I think it's too if he comes out too publicly pushing for that, it's like an antitrust nightmare. It's it's exactly right.

I mean, like the the whole Tik Tok story proves that you potentially can build a new social app if you're willing to spend or at least you could in the rise of vertical video.

could in that moment create a a meta competitor if you were willing to spend $20 billion, you know, incinerate, you know, incinerate $20 billion or whatever they did to to just spend money to acquire all the users and build your own network. That's exactly right.

And there is nobody on the ground in DC who's using their limited lobbying dollars for the Tik Tok ban. What Zuck wants is better data construction, better data center construction, right? Fix the energy policy in this country. And it's, by the way, it's a it's a zero negative sum system.

You can only work on so many things during every congressional term, every admin term. Zero sum, not zero sum. It's even worse. It's even worse than zero sum. It's everybody's got to lose. It's even worse. Zero sum system. Whoever loses the least wins. That is unfortunately true in politics. Welcome to the swamp.

Uh Zuck says he's building a 1 gawatt cluster, aiming for a 5 gawatt cluster. I love I love this should count as a three repeat because we've told you three times now. Last last question. Last question. This is fun though. I know. I appreciate it. I'll I'll take the three feet.

Um uh uh he said he said 5 gawatt cluster uh in a few years in several years. That feels further out than most of the AI hyper accelerationists. Uh is that an energy policy thing? What are his clear asks? Like what what would what would what would he want to change in Washington around energy policy?

This is a huge energy policy problem. Energy policy is is annoying because it happens both at the federal level but also at the state level and even at the local level, right? You got things like zoning. If you guys read the abundance book, you got things like zoning that impact you at the very local level.

And the critique on the left right now for a lot of these questions hard, it's a hard one for these folks to work on is gosh, look at all the environmental problems of building the data centers near communities and so on and so forth.

And I would expect that in an Okaziocortez administration or a Buddhaj administration to be a big problem in, you know, four years. What Zuck wants today is make it easier for me to build, right? reduce regulation at the state and local level for me to actually construct data centers.

Let me bring new nuclear reactors online, right?

Bring new sources of energy online faster in this country and and and set one federal standard to regulate many of the rules such that you don't have different states and different localities who all have patchwork systems because if you need multiple people to coordinate all at once, that's where you get these long timelines and complexity.

It's going to be the delta smelt versus super intelligence. That is that is really the battle to watch. That is wild. Uh great having you on, Zack. Thanks for having me. Great to have you on again very soon. We'll talk to you soon, Z. Have a great day. Take care.

Uh well, if you're looking to pick up a hitter and you're heading to Washington, go to getbzzle. com. Bezel concier is available to source you any watch on the planet. You can go to your bezel concier and say, "I'm heading to Washington DC. I'm talking to the big dog. I'm talking to the big man.

I'm going to Mara Lago and I need a hitter. " and they will hook you up. Go to getbzzle. com and don't if if you get a meeting with Jensen, show respect and wear an RM wear an RM. Wear an RM. I want to talk about the history of Rishard Mill. It's fascinating. There's a I found a good thread.

I also did a Chachi PT deep deep research report. I found an interesting ad today, by the way. Uh little little uh note in there. Uh, I forget what the line was, but we said it's the cold emails, the the the the warm intros, the deep research. The deep research. Yeah.

And the deep research for the show in some instances is literally deep research. Um, so the