Chip Giant Faces Headwinds as China Shifts Focus to Domestic AI Providers
Nvidia’s stock took a hit on Monday, plummeting as much as 2.8% in pre-market trading, as investors digested reports that Chinese regulators are discouraging local companies from purchasing the company’s artificial intelligence (AI) chips. The stock later pared its losses, ending the day down 1.4% at around $120. According to Bloomberg, Beijing is urging Chinese firms to opt for domestic chipmakers over Nvidia’s popular graphics processing units (GPUs), amid escalating trade tensions with the US.
Meanwhile, Chinese AI chipmaker Cambricon Technologies surged 20% on Monday, as investors bet on the company’s growth prospects. Nvidia’s rivals, including Advanced Micro Devices (AMD), Qualcomm (QCOM), and Intel (INTC), also felt the impact, with their shares declining modestly.
The US has been tightening export controls on AI chips to China since late 2022, aiming to slow down the country’s advancements in the AI sector. As a result, Nvidia’s sales to China have taken a hit, accounting for 14% of its data center revenue in the fiscal year ended January 28, 2024, down from 19% the previous year.
In response, Nvidia has been working around these restrictions by developing customized chips for the Chinese market, which comply with the stricter controls. The company’s “H20” Hopper chips, launched this year, are expected to generate $12 billion in revenue in 2024. A version of its latest Blackwell chip, called “B20,” is also in the pipeline for China, although a release date has not been set.
Despite these challenges, Nvidia’s sales in China have shown signs of recovery in recent quarters. Revenue from Chinese sales totaled around $3.7 billion in the quarter ended July 28, up 33.8% from the previous year, according to Bloomberg estimates. The company’s shares have rallied 144% since the start of the year, driven by strong demand for its AI chips.
Analysts remain upbeat on Nvidia’s prospects, with about 90% of Wall Street analysts recommending a “buy” rating and predicting a target price of $147.61 over the next year. According to Daniel Newman, CEO of the Futurum Group, there is “strong optimism right now from the top leaders” in the semiconductor sector, despite historic volatility in the industry.
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