Nvidia has long been recognized for its global reach, particularly in selling advanced artificial intelligence (AI) chips, which has driven significant growth. However, recent US government restrictions, starting with former President Joe Biden’s administration and continuing under President Donald Trump, have altered this dynamic.
In 2022, the Biden administration introduced export controls to limit the types of AI chips that could be sold to China, a major market. The AI Diffusion Rule was also issued to reinforce these restrictions. Although the Trump administration recently revoked this rule, it plans to introduce new guidelines soon. Nvidia was recently informed that it could no longer sell its previously approved H20 chips in China due to a US rule, resulting in a multi-billion dollar charge for the company.
In the most recent fiscal year, ending January 26, 2025, China accounted for 13% of Nvidia’s revenue, indicating that continued restrictions could impact growth. Investors have been closely monitoring CEO Jensen Huang’s response to these challenges. During a recent earnings call, Huang conveyed a significant message regarding Nvidia’s future in China.
Nvidia’s H20 AI chip, based on its Hopper architecture, was designed to comply with US regulations and had been approved for export. However, in April, the US government informed Nvidia that the H20 could no longer be exported without a license, which has yet to be issued. Consequently, Nvidia announced a $5.5 billion charge, later reduced to $4.5 billion, as they repurposed some materials. Nvidia’s market share in China has now declined from 95% to 50%.
Huang described China as one of the largest AI markets and essential for global success. He noted that the $50 billion Chinese market is effectively closed to US industry, and while limited ways to compete are being explored, the Hopper chip is no longer an option. Colette Kress, Nvidia’s CFO, stated that losing China’s AI accelerator market could have a material adverse impact on the company.
If Nvidia permanently loses access to China, this could constrain growth. However, two factors suggest this outcome may not occur. First, Huang has demonstrated resourcefulness, evidenced by the rapid development of the H20 chip to comply with guidelines. His proactive approach may mitigate potential damage. Second, Huang has been vocal about the restrictive policies’ potential harm to US companies, possibly influencing the Trump administration to reconsider its stance.
Despite the challenges in China, the United States remains Nvidia’s largest market, contributing $61 billion in revenue out of a total of $130 billion. Revenue from other regions has also increased significantly. While a complete halt to Chinese sales would impact growth, Nvidia continues to advance globally.
Regarding stock performance, a worst-case scenario might negatively affect short-term outcomes. Nevertheless, Nvidia’s global AI leadership is unlikely to undermine its long-term value. An intermediate resolution allowing some presence in the Chinese market could, conversely, lead to a rise in Nvidia’s stock.
