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Nvidia plans to sell $12 billion worth of artificial intelligence chips in China this year, despite U.S. export controls that have curbed its business in one of the world’s largest semiconductor markets.
Analysts predict the Silicon Valley group, which has a market capitalization of $3 trillion, plans to ship more than 1 million of its new H20 chips in the coming months, which are designed to be exempt from U.S. restrictions on selling AI processors to Chinese customers.
That’s nearly double Huawei’s projected sales of a Chinese-made rival, the Ascend 910B, according to estimates by semiconductor consultancy Semianalysis.
Nvidia is the latest Silicon Valley company to be caught in the crossfire of tensions between Washington and Beijing. The Biden administration wants to block the flow of the world’s most powerful chips into China because it fears Beijing will use them to build more powerful AI systems for military use.
The resulting shortage of AI chips is dealing a blow to the ability of Chinese tech companies such as ByteDance, Tencent and Alibaba to compete with U.S. rivals OpenAI, Microsoft, Meta and Google in the technology that is reshaping the industry.
The H20 chips, priced at $12,000 to $13,000 each, are likely to generate more than $12 billion in sales for Nvidia, which would exceed the $10.3 billion in revenue it earned across its China business, which includes sales of graphics chips to PC gamers and other products, in the fiscal year ending in January 2024.
Nvidia declined to comment on the forecast. Huawei did not respond to a request for comment.
Since the Biden administration first introduced restrictions on Nvidia’s sales of its most powerful AI chips in China in 2022, the company has warned that its business would be hurt as Chinese cloud-computing providers and AI startups turn to local alternatives such as Huawei.
“Our business in China is significantly slower than historical levels,” Nvidia CEO Jensen Huang said in the company’s most recent earnings call in May. “Given the limitations of our technology, competition in China is now much stronger. However, we continue to do our best to serve our customers in the local market.”
Nvidia Chief Financial Officer Colette Kress said on the same conference call that revenue in China for its data-center division, which includes AI chips, was “down significantly from levels before the new export control restrictions were implemented in October” in the most recent quarter.
Even in 2021, before the U.S. began imposing export controls, China accounted for more than a quarter of Nvidia’s total sales. If the H20 chips sell as well as analysts expect, China sales could be closer to 10% this year. But it also reflects Nvidia’s big growth in U.S. tech companies building AI systems at scale.
Nvidia’s sales in China have been declining ahead of the launch of the new H20 model this spring, but analysts at Morgan Stanley and Semianalysis said the chips are now being shipped in large quantities and are proving popular among Chinese customers, despite being less powerful than the chips Nvidia can sell in the U.S.
“Buyers are reporting positive feedback about the H20 cluster’s potential competitive advantages,” Morgan Stanley said in a research note to clients this week, pointing to “strong Chinese demand.”
Semianalysis’s Dylan Patel said that while the H20’s performance is “in theory” inferior to Huawei’s 910B, in practice the Nvidia chip is “significantly outperformed” thanks to its superior memory performance.
He estimated that Huawei will sell about 550,000 of the 910B chips in the same period as the Shenzhen-based company and its manufacturing partners struggle to produce enough of the complex processors to meet demand.
Most of China’s AI companies also build their AI models on NVIDIA’s ecosystem and software, so switching to Huawei’s infrastructure will take time and money.
The Biden administration introduced restrictions on Nvidia’s ability to sell its most powerful chips, including the A100 and H100, to China in October 2022. It further tightened those restrictions late last year to exclude newer Nvidia chips as well. By November, Nvidia had begun selling new chipsets tailored to China, the most powerful of which is the H20.
China, including chips for PC gamers, data centers and other customers, accounted for about 9% of Nvidia’s total revenue in the most recent quarter through April, down from 22% in the same period a year ago. But overall revenue from China, including Hong Kong, continued to grow in the period, rising more than 50% year-over-year to $2.5 billion.
