Nvidia Faces Uncertain Outlook in China as H20 Ban Reversal Comes With New Costs

Nvidia’s sales trajectory in China has been marked by sharp swings in recent months as a result of U.S. trade restrictions and subsequent policy reversals. In its first-quarter earnings report, the company disclosed a $4.5 billion charge tied to its H20 product line, following a U.S. government ban announced on April 9, 2024. The measure disrupted an anticipated $7.1 billion in revenue from the chip, with only $4.6 billion ultimately recognized and roughly $2.5 billion worth of products left unshipped. Analysts expect the repercussions of that policy to be more severe in the second quarter, with a potential revenue loss of about $8 billion.

The outlook shifted again on July 15, when Washington lifted the H20 ban and granted Nvidia a shipping license in early August. The approval, however, came with a new stipulation: 15% of revenue derived from these sales must be remitted to the U.S. government. Because Nvidia’s second fiscal quarter, covering May through July, had already closed, the benefits of resuming shipments are expected to appear mainly in the third and fourth quarters. Brokerage firm Bernstein has estimated that H20 could add between $15 billion and $20 billion in sales over the latter half of the fiscal year (source: Bernstein Research).

Going forward, several factors will determine the extent of Nvidia’s recovery in China. A critical issue is whether the company can pass the 15% levy on to its clients. Demand in mainland China has remained resilient, and with H20 chips priced below domestic alternatives, Nvidia may have room to adjust pricing without eroding competitiveness. Another variable is regulatory sentiment inside China, where state media and authorities, including the Cyberspace Administration of China, have raised national security concerns that could weigh on corporate adoption of the H20. Finally, production and delivery capabilities will play a decisive role. Nvidia’s first-quarter filings indicated a sizable inventory of H20 chips, suggesting near-term supply is adequate. Yet sustaining elevated demand would depend on new orders from Taiwan Semiconductor Manufacturing Company, whose advanced 5nm and 4nm nodes are already running at full capacity, a constraint that could push delivery timelines out by at least two quarters.

The shifting regulatory environment, combined with structural supply constraints and geopolitical sensitivities, leaves Nvidia navigating a complex landscape in its most strategically important overseas market.