Market Analysis

Nvidia's Secretive U.S. Export Restrictions Catch China Clients Off Guard

Mellissa · 16 Apr25.3K Views

Image Credit: Reuters

Nvidia did not notify some of its major customers ahead of the new U.S. export restrictions, which were introduced last week. These rules require Nvidia to obtain licenses for selling its H20 artificial intelligence chip to China. The U.S. Commerce Department informed Nvidia on April 9 that the H20 chip would need an export license for sales to China.

This move is part of Washington's broader strategy to limit China's access to advanced semiconductors, aiming to maintain its lead in AI technology.

Several major Chinese cloud companies were still expecting deliveries of the H20 chip by the end of the year, unaware of the new restrictions. Sources familiar with the situation also stated that Nvidia's China sales team was not informed ahead of the public announcement. These sources requested anonymity due to the sensitivity of the matter.

The export controls pose a threat to Nvidia's business in China, one of its largest markets. Since the beginning of the year, Nvidia had secured $18 billion in H20 orders, according to one source. In the previous fiscal year, China generated $17 billion, or 13%, of Nvidia's total revenue.

Nvidia’s shares dropped by 6% in after-hours trading on Tuesday after the company revealed it would incur up to $5.5 billion in charges in Q1, which ends on April 27, due to the licensing requirement. These charges are linked to inventory, purchase commitments, and reserves for H20 products.

Chinese tech giants like Tencent, Alibaba, and ByteDance had increased orders for H20 chips due to rising demand for affordable AI models. However, Alibaba, ByteDance, and Tencent have not yet responded to comment requests.

The H20 is Nvidia’s primary chip legally allowed for sale in China and was launched following the latest U.S. export restrictions in October 2023. The U.S. has prohibited Nvidia from exporting its most advanced chips to China since 2022, citing concerns that these technologies could strengthen China’s military capabilities.

These new restrictions on the H20 chip could benefit Chinese AI chipmakers, particularly Huawei, which offers competing products. Analysts suggest that by restricting H20 sales, the U.S. is pushing Nvidia's Chinese customers toward Huawei’s AI chips, which could rapidly advance as it gains more customers and development experience.