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Nvidia Faces $5.5 Billion Hit as U.S. Tightens AI Chip Export Rules to China

China previously accounted for 20% of Nvidia's revenue, but this has now shrunk to about 10%, with expectations that it could drop to near zero.
Nvidia Faces $5.5 Billion Hit as U.S. Tightens AI Chip Export Rules to China

Nvidia is facing a $5.5 billion charge after the U.S. government restricted exports of its H20 Al chips to China. Nvidia's shares dropped about 6% following the announcement. 

The H20 was designed to comply with earlier export limits, but officials now fear it could be used in Chinese supercomputers, prompting indefinite licensing requirements.

China previously accounted for 20% of Nvidia's revenue, but this has now shrunk to about 10%, with expectations that it could drop to near zero.

This move is part of Washington's broader strategy to limit China's access to advanced Al hardware, escalating tensions in the global tech race. Nvidia's stock dropped about 6% following the announcement.

The H20 was Nvidia's most advanced chip available in China, widely used by companies like Tencent, Alibaba, and ByteDance. These firms had ramped up orders due to growing demand for Al models.

While the H20 has lower computing capabilities than Nvidia's top-tier chips, its high-speed memory and connectivity raised concerns that it could be used in Chinese supercomputers, prompting the U.S. to impose indefinite licensing requirements.

Meanwhile, Nvidia is pivoting towards its Blackwell-series Al chips, which are expected to be the next major product line. Besides, the company has recently announced plans to build AI servers worth up to $500 billion in the U.S. over the next four years, aligning with efforts to boost domestic tech infrastructure.

Nvidia is bracing for additional U.S. export controls under proposed "AI diffusion rules," which could further limit its ability to sell advanced AI hardware globally. Revenue from China has halved compared to pre-restriction levels, with Huawei emerging as a key competitor.

Analysts predict that Chinese firms may pivot to Huawei or other domestic alternatives, accelerating China’s push for semiconductor independence.

The U.S. government now requires indefinite export licenses for H20 shipments to China, citing concerns over potential use in Chinese supercomputers.
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