TLDR
- Nvidia disclosed that future sales of H20 AI chips to China now require U.S. Department of Commerce licenses, which are unlikely to be approved
- The company will take a $5.5 billion charge in Q1 fiscal 2026 for H20 inventory and canceled sales
- Nvidia stock fell about 6.5% in premarket trading following the news
- Chinese clients like Alibaba, Tencent, and ByteDance were reportedly not warned about the new export restrictions
- China generated 13% of Nvidia’s total sales last year ($17 billion), with $18 billion in H20 orders already secured for 2025
Nvidia disclosed Tuesday evening that the U.S. Department of Commerce now requires licenses for its H20 AI chip sales to China, a move expected to halt these exports and lead to a $5.5 billion charge in the current quarter. The news sent Nvidia shares down 6.5% to $105.00 in Wednesday’s premarket trading.
The H20 chips are less powerful versions of Nvidia’s market-leading AI accelerators designed specifically for the Chinese market. While they have reduced capabilities compared to Nvidia’s top chips, they remain powerful enough to raise security concerns.
U.S. officials worry that if enough H20 chips were connected, they could create supercomputing capabilities that might rival those used by the Department of Energy for nuclear test simulations and war planning.
Chinese Customers Left in the Dark
According to Reuters reports, major Chinese tech companies like Alibaba, Tencent, and ByteDance were caught off guard by the new restrictions. These companies had expected to receive their H20 chip orders by the end of this year.
The U.S. government informed Nvidia of the new requirements on April 9. However, the company apparently failed to alert its Chinese clients about the impending restrictions.
This lack of communication could damage Nvidia’s relationships with key Chinese tech firms. It may also raise compliance questions from both U.S. and Chinese regulatory authorities.
The timing creates a challenging situation for Nvidia’s Chinese customers who had already planned their AI infrastructure around these chips.
Financial Impact on Nvidia
The export restrictions represent a serious financial blow for Nvidia. China accounted for 13% of the company’s total sales last year, generating approximately $17 billion in revenue.
Nvidia had secured around $18 billion worth of H20 chip orders for 2025. These orders are now in jeopardy.
The company will take a $5.5 billion charge in the first quarter of fiscal year 2026 due to H20 inventory and canceled sales.
According to Jefferies analyst Blayne Curtis, the limits could prevent Nvidia from recognizing around $10 billion in revenue. This creates a potential headwind of $5 billion in the July quarter alone.
Shifting Political Landscape
The timing of these restrictions highlights the complex political environment Nvidia must navigate. The company received the export restriction notification on April 9.
Just days later, on Monday, Nvidia joined the Trump administration in announcing $500 billion in domestic investment. This figure largely consists of U.S. capital expenditures from Nvidia customers like Amazon, Microsoft, and Google.
The investment announcement also includes plans for a U.S. assembly plant for Nvidia AI servers.
The percentage of Nvidia’s sales from Chinese billing addresses has been declining in recent years. It dropped from 26% in fiscal 2022 to 13% in fiscal 2025, as U.S. government restrictions tightened.
In 2022, the Biden administration banned sales of full-powered Nvidia hardware to China but allowed versions with limited capabilities like the H20. Now, even these modified chips require licenses.
When asked for comment, Nvidia said it had nothing to add beyond its SEC filing.
The restrictions could accelerate China’s efforts to develop domestic chip alternatives. Analysts believe Chinese chipmakers like Huawei might benefit as local companies seek alternatives to Nvidia’s products.
While Chinese-made chips currently lag behind Nvidia’s in performance, the export curbs could drive fresh investment and faster innovation in China’s AI chip sector.
This shift comes as the U.S. government grows increasingly concerned about China’s technological advancement, particularly in areas like artificial intelligence that have dual civilian and military applications.
Nvidia’s stock has been a standout performer in recent years, driven largely by the AI boom. This setback comes at a challenging time as the company already faces questions about the pace of its new GB200 chip rollout.
According to TipRanks, Nvidia stock maintains a Strong Buy consensus rating based on 37 Buy and four Hold ratings. The average price target of $173.11 suggests nearly 54.3% upside potential from current levels.
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