American semiconductor giant Nvidia (NVDA) is modifying its H20 artificial intelligence (AI) chips for making them compliant with export regulations to China. Nvidia is reportedly downgrading the performance of its current version of H20 chips, after the U.S. put new export restrictions on them. Notably, Nvidia has informed major Chinese customers that the revised chips will be ready for export within two months. The news was first reported by Reuters, citing sources familiar with the matter.
The sources stated that Nvidia has designed new technical thresholds for modifying the performance of the H20 chips. One of the key objectives is to reduce the chip’s memory capacity, which will impact its processing speed and computing power. However, one source mentioned that downstream customers could tweak the module configuration to enhance the chip’s performance. Having said that, downgrading H20’s performance could open up the market for domestic player Huawei, which is already making equally competing chips.
Nvidia Becomes a Victim of the U.S.-China Trade War
Nvidia has found itself in the crosshairs of the U.S.-China trade war. Although Trump has hinted at easing pressures on the semiconductor industry with plans to scrap “overly bureaucratic’ AI rules from the Biden era, Nvidia will most likely continue to face strict export restrictions on its advanced AI chips. The company’s efforts of redesigning its once-compliant H20 chips is a major attempt of maintaining a stronghold in China.
Last month, the Trump administration said that Nvidia and peers like AMD (AMD) would require export licenses for exporting advanced AI chips to China. This requirement dealt a significant blow to Nvidia, since China is one of its most important export markets. The AI powerhouse also warned of a $5.5 billion charge in the ongoing quarter due to the new restriction.
Nvidia has never once downplayed the importance of the Chinese market for its products. Recently, CEO Jensen Huang said in an interview that losing access to China’s AI market would be a “tremendous loss,” as the market is expected to reach about $50 billion within the next two to three years. It remains to be seen how the Trump administration responds to this latest development.
Is NVDA a Buy, Hold, or Sell?
Despite the ongoing challenges, analysts remain highly optimistic about Nvidia’s long-term stock trajectory. On TipRanks, NVDA stock has a Strong Buy consensus rating based on 34 Buys, five Holds, and one Sell rating. Also, the average Nvidia price target of $164.35 implies 40% upside potential from current levels. Year-to-date, NVDA stock has lost 12.6%.
