NVIDIA will make over $12bn from China alone by selling AI chips, despite US sanctions

NVIDIA is on track to achieve remarkable sales of $12 billion in artificial intelligence chips in China this year, even amidst stringent US export controls. In effect, this has created a major hurdle for NVIDIA, in one of the world’s largest semiconductor markets.

Over the coming months, the Silicon Valley giant is expected to deliver more than one million units of its new H20 chips to Chinese customers. These chips are strategically designed to bypass US restrictions on selling AI processors to China, according to a Financial Times report, that quoted some notable analyst forecasts.

This impressive figure is nearly double the expected sales of Huawei’s China-made rival product, the Ascend 910B, as estimated by SemiAnalysis, a chip consultancy. NVIDIA’s ability to navigate the complex geopolitical landscape and continue to serve the Chinese market highlights its resilience and strategic prowess.

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The US government’s concerns about China potentially using advanced AI chips for military applications have led to export controls aimed at limiting the flow of powerful chips to Beijing.

These controls have impacted Chinese tech companies like ByteDance, Tencent, and Alibaba, hindering their ability to compete with US counterparts such as OpenAI, Microsoft, Meta, and Google.

Despite these challenges, NVIDIA’s H20 chip, priced between $12,000 and $13,000 per unit, is set to generate significant revenue, potentially exceeding $12 billion in sales.

This would surpass the $10.3 billion revenue NVIDIA made from its entire China business, including graphics chips for PC gamers and other products, in the financial year ending January 2024.

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NVIDIA has not commented on these sales forecasts, while Huawei has also remained silent. NVIDIA’s CEO, Jensen Huang, acknowledged the impact of US export controls on the company’s China business during a recent earnings call. Huang noted that the business in China is now more competitive due to these limitations, but emphasized NVIDIA’s commitment to serving its customers in the region.

Colette Kress, NVIDIA’s finance chief, reported that revenue from the company’s data centre segment in China, which includes AI chips, was significantly down from previous levels prior to the export restrictions imposed in October 2022.

In 2021, before the US began imposing these controls, China accounted for more than a quarter of NVIDIA’s total revenues. Although the H20 chip is expected to perform well, China’s share of NVIDIA’s sales this year could be closer to 10 per cent, reflecting the substantial growth NVIDIA is experiencing from US tech companies.

Analysts at Morgan Stanley and SemiAnalysis have indicated that the H20 chip is now being shipped in volume and is gaining popularity among Chinese customers, despite its reduced performance compared to the chips NVIDIA sells in the US. Morgan Stanley noted strong demand for H20 clusters in China in a recent research note.

In contrast, Huawei is expected to sell around 550,000 Ascend 910B chips during the same period. The Shenzhen-based company and its manufacturing partners are facing challenges in producing these complex processors in sufficient volumes to meet demand.

Additionally, most Chinese AI companies have built their AI models on NVIDIA’s ecosystem and software, making a switch to Huawei’s infrastructure time-consuming and costly.

The Biden administration’s restrictions, first introduced in October 2022, targeted NVIDIA’s most powerful chips, including the A100 and H100.

These controls were tightened later in the year to exclude NVIDIA’s newer chips. In response, NVIDIA began marketing a new set of chips adapted for China, with the H20 being the most powerful.

Overall, including chips for PC gamers, data centres, and other customers, China represented about 9 per cent of NVIDIA’s total revenues in the most recent quarter, ending in April, down from 22 per cent in the same period a year earlier.

Despite this decline, NVIDIA’s overall revenues from China, including Hong Kong, still increased by more than 50 per cent year on year to $2.5 billion.

As NVIDIA continues to navigate these challenges, its strategic adaptation and robust demand for its AI chips in China underscore its significant role in the global semiconductor market.