Nvidia Corporation is getting it from all sides. This follows their announcement of an $860 million quarterly charge related to their H20 graphics processing units (GPUs). The firm developed the H20 chip while intentionally staying within the boundaries of U.S. export controls with special attention on avoiding U.S. sales to China. In response, the U.S. government has published new and increased requirements that require licenses for all exports to a dozen countries, including China. Consequently, Nvidia’s future growth path might face serious obstacles.
The H20 chip is becoming increasingly important as Nvidia’s success becomes even more intertwined with generative AI. In fact, last year it was responsible for $12 billion to $15 billion in revenue for the company. Its unique design makes it a perfect fit for markets such as China. This region has recently become the most important area for sales to Nvidia. The risks The company has had an impressive run of outperformance, but the threat of export restrictions is a serious matter. This would seriously impair its long-term sustainability and competitiveness.
As a first order consequence of these advancements, Nvidia recently released some staggering news. The company will take a $5.5 billion quarterly hit as a result of shipping the H20 GPUs for export. The announcement prompted a historic drop in Nvidia’s stock, which tumbled over 6% in after-hours trading.
As a result, the export of H20 chips will require a license from the U.S. government. This is a dramatic increase in the level of regulatory enforcement. Analysts view this as one of the clearest indications yet that Nvidia’s growth could be constrained by increasing limitations on its ability to sell products in critical markets.
During the COVID-19 pandemic, Nvidia cemented its dominance over the semiconductor landscape. These export restrictions threaten to undermine its ability to stay ahead of that competitive edge. The H20 chip meets U.S. sanctions conditions in order to increase sales. The new market reality signals that access may be harder to obtain than you think.
Global economist Mohamed El-Erian reflected recently on the long run consequences of these growing tensions. He stated, “Fundamentally, things have not been resolved. Fundamentally, the game of chicken between China and the U.S. continues, and other countries are trying to figure out how to navigate this.”