Nvidia’s CEO, Jensen Huang, recently discussed the significant impact of U.S. export controls on the company’s operations, specifically regarding its H20 processor sales to China. In late April, the Trump administration informed Nvidia that it would require an export license for the H20 chips. These chips had already been approved for sale to the Chinese domestic market. This was such a surprise to Nvidia that this announcement required them to stop selling overnight. Huang was quick to note there was “no grace period” for that transition.
The impact of these export controls has been sweeping. Following the imposition of the ban, Nvidia took a multibillion-dollar writeoff on chips that it could no longer sell or repurpose. The company announced a monumental $4.5 billion write-down directly tied to this unsold, largely unsellable inventory. Huang disclosed that Nvidia had to cancel $8 billion of its future H20 orders. He explained this loss largely by the abrupt rollout of new export rules.
Despite the challenges Nvidia has encountered, their fiscal first quarter financial results have been jaw-droppingly strong. Their revenues increased to $44 billion, an extraordinary 69% jump from just a year prior. As Huang noted, without these provisions sales would likely have exploded even further. He projected a worst case scenario $2.5 billion revenue miss if the company had been able to sell H20 chips for the full quarter.
Huang made a forceful case for a key takeaway. He argues that the current U.S. policy is built upon the flawed premise that China cannot produce AI chips. He stated, “The U.S. has based its policy on the assumption that China cannot make AI chips. That assumption was always questionable, and now it’s clearly wrong.” At the same time, Huang cautions, China isn’t going to slow down its development of AI capabilities. As such, this development will happen “with or without Nvidia’s chips.” Perhaps more importantly, he underscored the point that Chinese AI researchers will increasingly replace them with domestic alternatives from companies like Huawei.
In a noteworthy shift, Huang expressed gratitude towards former President Trump for rescinding the pending “AI diffusion” rule that would have imposed quotas on AI chip exports to many countries. He specifically commended Trump’s work to push through partnerships with Saudi Arabia and the United Arab Emirates. All these partnerships are aimed at setting up massive, environmentally-efficient data hubs in the Middle East. Overall, these developments are a positive strategic change for Nvidia, enabling the company to concentrate its attention on opportunities not tied to the country of China.
“Our latest chips and systems are being built on U.S. soil,” Huang remarked, reflecting Trump’s agenda to encourage high-tech manufacturing domestically. He highlighted the difficulties of the Chinese market, explaining that it is essentially closed to U.S. industry. “The $50 billion China market is effectively closed to U.S. industry,” he noted.
Looking forward, Huang said that Nvidia has no other face-saving plan to avoid the complications of the China conundrum. He is just as watchful on the treacherous frontier, where other countries — with China at the forefront — are pouring massive resources into AI technology.
At this pivotal moment, Nvidia can’t afford to misstep on any of these fronts. The company will need to continue pivoting to shifting regulations and developing new markets and opportunities to succeed.