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Nvidia’s recent revelations have significant implications for its business operations as the company prepares to take a substantial quarterly charge of approximately $5.5 billion related to exporting its H20 graphics processing units (GPUs) to China and other regions. Following this announcement, Nvidia’s stock experienced a 6% decline in after-hours trading.
The situation escalated when, on April 9, the U.S. government informed Nvidia that it would need to secure a license to export these chips, particularly to China and select other countries. This development signals a potential slowdown in Nvidia’s remarkable growth trajectory, primarily due to tightening export restrictions on its technology, which, according to U.S. authorities, could be utilized for military-grade supercomputers.
Export regulations on AI chips have intensified since the Biden administration instituted restrictions in 2022, which were subsequently revised the following year to encompass advanced AI processors. The H20 chip, created to align with these U.S. export guidelines, reportedly generated revenues between $12 billion and $15 billion in 2024.
Nvidia’s CEO, Jensen Huang, noted during the February earnings call that the company’s revenue from China had plummeted to just 50% of its pre-export-control figures. Furthermore, Huang indicated that competition within the Chinese market is escalating, highlighting Huawei as a competitor in the company’s annual filing for the second consecutive year.
The H20 chip, which is viewed as equivalent to the H100 and H200 AI chips in Western countries, falls short in interconnection speed and is based on an earlier AI architecture called Hopper, introduced in 2022. Nvidia is now pivoting toward its newer AI chip generation, referred to as Blackwell.
A notable player utilizing the H20 chips is DeepSeek, a Chinese company known for its competitive AI model that has significantly impacted the market since its launch earlier this year.
As Nvidia grapples with existing limitations on its chip exports, it will also confront new regulations under the “AI diffusion rules,” which are set to take effect next month, following proposals from the Biden administration.
Nvidia has consistently argued that such restrictions could inhibit competition and potentially diminish the U.S. technological edge. Following the export controls instituted in 2022, Nvidia stated that it had relocated portions of its operations, including testing and distribution, outside of China.
When questioned about the evolving landscape of Chinese export controls during last month’s conference, Jensen Huang emphasized the importance of compliance with legal frameworks while noting that a significant portion of the global AI research community is based in China, with many researchers actively engaged in U.S. AI laboratories.
Nvidia is scheduled to release its fiscal first-quarter results on May 28.
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WATCH: Nvidia indicates U.S. licensing requirements for H20 exports to China
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