Nvidia is now the biggest US-China bargaining chip
Summary
The ban on sales of the H20 chips calls into question the company’s ability to continually beat Wall Street’s lofty expectations.Nvidia’s position in artificial-intelligence computing is strong enough that even the company’s bottom-shelf chips have plenty of demand. In the trade war, this isn’t proving to be a good thing.
Nvidia’s share price fell hard Wednesday morning after the company told investors the U.S. government now requires a license for the company to sell its H20 AI chips in China and a handful of other countries. The company said this will lead it to take a $5.5 billion charge in its current quarter related to inventory and purchase commitments for the chip.
The inventory charge indicates about $13 billion in actual H20 sales, according to Tim Arcuri of UBS. Nvidia generated $115.2 billion in data-center revenue in its fiscal year that ended in January—and is projected to do about $182 billion in sales for that segment this year, according to FactSet estimates.
Although the H20 chip isn’t a huge part of Nvidia’s sales, it will hurt the company’s ability to continually beat and raise Wall Street expectations—the way it has done for at least the last three years. Investors are looking for a 56% jump in revenue for the current fiscal year; the company reports fiscal first quarter results in late May.
Nvidia designed the H20 chip to comply with existing U.S. export controls that limit sales of advanced AI processors to Chinese customers. That meant the chip’s capabilities were significantly degraded; Morgan Stanley analyst Joe Moore estimates the H20’s performance is about 75% below that of Nvidia’s H100 family. That was the company’s top-of-the-line AI chip two years ago.
But the inability to sell even a low-performance chip into the Chinese market shows how the trade war will scramble its business. Nvidia is now caught between the world’s two superpowers as they jockey to take the lead in AI development.
Of particular note is the fact that news of the effective ban came just a day after Nvidia announced a plan to clearly intended to curry favor with President Trump, who’s been pushing U.S. companies to move more manufacturing here.
Nvidia CEO Jensen Huang even attended a dinner with Trump at Mar-a-Lago earlier this month, which spurred a media report claiming that the White House was backing off its plan to ban H20 sales in China. But an escalating trade war isn’t a great backdrop for America’s top chip company to be selling a lot of its goods into China.
Half a trillion dollars apparently only goes so far these days.
Write to Dan Gallagher at dan.gallagher@wsj.com
