$NVIDIA(NVDA)$ 's recent efforts to modify its AI chips for export to China, in compliance with tightened U.S. export restrictions, present a complex scenario for its share price. While these moves aim to preserve access to a critical market, the overall impact on the stock is subject to a variety of counteracting forces, making a "significant benefit" uncertain and dependent on numerous factors.
The Modified Chips and Market Access:
Facing stringent U.S. export controls aimed at limiting China's access to advanced semiconductor technology, Nvidia has been compelled to design less powerful versions of its AI chips for the Chinese market. Notably, the H20 chip, itself a product of earlier restriction compliance, is reportedly being further downgraded, with changes including reduced memory capacity. This strategy is an attempt by Nvidia to continue supplying major Chinese tech companies, a market that accounted for approximately 13-14% of its total sales in the previous fiscal year. The planned release of these modified chips is anticipated around July 2025.
If we looked at the table below, it summarizes Nvidia’s H20 sales into China during 2024. ByteDance, Alibaba, and Tencent placed massive orders totaling at least $16 billion, representing nearly all of Nvidia’s reported China revenue. More than 1 million units were shipped, making the H20 the most hoarded AI chip in China’s short tech history.
So if this is the case, will we see a direct replacement of the modified H20 chips as China’s AI strategy scales with contribution coming from cloud rental to chip hoarding.
Potential Headwinds and Risks
Despite the intention to maintain a foothold in China, several factors could dampen the positive impact on Nvidia's share price:
Reduced Performance and Competitiveness: The downgraded chips will inherently offer less performance than Nvidia's cutting-edge products sold elsewhere and potentially less than their originally planned China-specific versions. This could make them less attractive to Chinese customers, especially as domestic competitors like Huawei are actively developing their own AI accelerators.
U.S. Export Policies: The U.S. government's stance on tech exports to China remains a significant uncertainty. Restrictions have been progressively tightened, and there's no guarantee that current modifications will ensure long-term compliance or prevent further limitations. Nvidia has already flagged a substantial financial hit, around $5.5 billion, related to inventory and commitments for the H20 chip due to these evolving regulations.
Financial Impact: While retaining some sales in China is preferable to a complete exit, the revenue generated from these lower-spec chips might be less, and potentially at lower margins, than what could have been achieved with more advanced products.
Investor Sentiment: Investor sentiment has been reactive to developments in this area. News of successful compliance and market access can lead to temporary stock price increases. However, announcements of stricter bans, financial write-offs, and the rise of Chinese competitors have historically led to share price declines and nervousness among investors. Analysts hold mixed views, with some seeing the China situation as a manageable near-term headwind overshadowed by broader AI demand and new product cycles (like the Blackwell platform), while others express more significant concerns about revenue loss and competitive pressures in China.
Long-Term Chinese Strategy: China is heavily investing in developing its domestic semiconductor industry. Regardless of Nvidia's efforts, there's a strong push within China to reduce reliance on foreign technology, which could limit Nvidia's market share in the long run.
Potential (Limited) Upsides
Retaining Some Market Share: Successfully navigating the restrictions allows Nvidia to continue generating revenue from a significant market, rather than losing it entirely. This demonstrates adaptability and a commitment to serving customers within regulatory boundaries.
The generative AI market surpassed $25.6 billion in 2024, driven by rapid adoption and the increasing integration of AI capabilities across industries, according to the 263-page Generative AI Market Report 2025–2030 (published January 2025).
The data center GPU market saw remarkable growth to $125 billion, with NVIDIA maintaining a dominant position, holding 92% of the market share.
Investor Relief (Short-Term): Any news suggesting a viable path forward in China, even with limitations, can provide some short-term relief to investors concerned about the impact of a complete market lockout. Initial announcements of chip redesigns to meet compliance have sometimes led to modest, temporary upticks in share price.
Based on the last Friday’s closing price, we are seeing the attempt to break through the 200-day period with RSI showing some promising momentum, but it does not seem to be enough to launch a daily uptrend continuation, and we might see further weakness next week if the talks over the weekend between US and China does not yield positive outcome for the chip maker.
On the weekly chart, we are still seeing the bears in control, so in order for NVDA to hit above $120, it would be hard, unless we have a very positive news coming from the weekend talks, and also investors start to come back for the chip sector.
As we can see from the RSI, the momentum on the weekly is still weak, though we are seeing some promising movement on the daily chart, so there might be some positive movement which could be modest, NVDA might trade range-bound around $117 to $119. I will continue to hold my position in NVDA as I believe in long term for this stock.
Summary
It is unlikely that Nvidia's recent modification of chips for the China export market will, in itself, "significantly benefit" the share price in a straightforward or sustained manner. The strategy is more accurately viewed as a damage control measure and an attempt to make the best of a challenging geopolitical and regulatory environment.
While retaining some access to the Chinese market is a positive compared to a complete withdrawal, the necessity of offering less powerful chips, the ongoing risk of further U.S. restrictions, the rise of local competition, and the financial impacts of these adjustments introduce considerable headwinds.
Any positive share price reaction is likely to be modest and potentially short-lived, overshadowed by the broader concerns and the reduced growth potential in China compared to a scenario with no restrictions. The long-term impact will depend on the delicate balance Nvidia strikes between compliance, competitiveness, and the evolving U.S.-China tech landscape, as well as its growth trajectory in other global markets and the success of its next-generation products.
Appreciate if you could share your thoughts in the comment section whether you think Nvidia could try for 120 with a modest positive share price movement.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
Comments