Nvidia’s China Comeback: H20 Export Policy Reversal Validates the $200 By-2025-end Bull Case
Just a week after I flagged the possibility of a U.S. policy reversal on Nvidia’s China-bound AI chips, that very pivot has materialized.
On July 15th, the Trump administration authorized Nvidia to resume exports of its H20 AI chips to China, reversing an April ban that had effectively shut Nvidia out of one of its most important markets.
On July 7th I wrote here
Hopes For A China Rebound?
China is a key market for Nvidia; it represented $17 billion or 13% of Nvidia’s sales for the fiscal year that ended in January. But Nvidia’s market share in the region has weakened dramatically from 95% before 2022, to 50% currently, after U.S. regulators tightened restrictions on selling high-end AI chips to China, citing national security concerns. To comply with the U.S. export curbs, Nvidia has been selling H20 to China. H20 is a watered-down version of its H100 chips with significantly lower computing power.
However, in April, the U.S. government tightened restrictions again, reclassifying even the scaled-down H20 as requiring an export license. The decision effectively halted shipments and dealt Nvidia a serious financial blow.
CEO Jensen Huang put it bluntly: “The H20 export ban ended our Hopper data center business in China.” Calling the $50 billion Chinese AI chip market “effectively closed to the U.S. industry,” Huang also warned that if U.S. export restrictions continue, more Chinese customers will turn to Huawei’s chips.
I highlighted this risk in a previous article that flagged both the threat of an H20 ban and Huawei’s preparation for competitive positioning, citing Jefferies and WSJ reports.
Nvidia recognized $4.6 billion in H20 revenue prior to April 9, before the new export restrictions kicked in. The financial fallout from the ban was significant. Nvidia wrote down $4.5 billion in unsold H20 inventory for the first quarter, and was unable to ship an additional $2.5 billion of what would have been H20-generated revenue. Gross margin fell to 61%, versus the 71.3% it would have reported without the China-related charges. In an interview with the Stratechery podcast in May, Huang also revealed the company had to walk away from an additional $15 billion of sales. The topline guidance of $45 billion for the July quarter, would have been higher by $8 billion, but for the new export restrictions.
So, why is there still hope for a China rebound for Nvidia?
Nvidia is pivoting swiftly. A Reuters report citing sources familiar to the matter said Nvidia is planning to build a GPU or graphics processing unit for China based on its latest generation Blackwell-architecture AI processors that will be priced at $6,500-8,000, well below the H20’s price range of $10,000-$12,000. The lower price could reflect the new export limits on GPU memory bandwidth – a metric crucial for AI workloads that require extensive data processing.
Also, recent developments suggest a thaw in the U.S.’s formerly hardline stance against China, signaling a broader shift in tone…
*Tariffs on Chinese goods have been sharply reduced from 145% to 30%
*A U.S.-China trade framework is now in place, following months of diplomatic gridlock
*U.S. President Trump softening his stance on Chinese oil imports from Iran
This gives rise to a key question: In this more conciliatory phase, is there any possibility that the U.S. could revisit its chip export restrictions to China as well?
The New York Times reported on June 27th that China confirmed details of a trade framework with the Trump administration. “China will review and approve applications for the export of controlled items,” China’s Ministry of Commerce said in a statement, and “the United States will correspondingly cancel a series of restrictive measures it has taken against China.”
While specifics remain vague, the framework hints at a meaningful de-escalation. The most compelling driver behind this shift? Not a change of heart, just China’s dominance in rare earth elements – critical for semiconductors, robotics and aerospace applications.
This accord between the U.S. and China, includes the latter’s commitment to deliver rare earth, in exchange for the U.S. lifting its export curbs on ethane, chip software and jet engines. As trade talks evolve, Beijing is not above deploying its rare earth “Trump card” to reopen access to restricted U.S. AI chip technologies.
If the U.S. should revise or relax chip export policies or greenlight a new line of compliant processors, Nvidia could regain access to the highly lucrative market. Such a development would materially bolster the case for Nvidia hitting $200 by year’s end.
Bottom Line
If Nvidia quickly restarts H20 exports and re-engages key Chinese clients, it could recover revenue faster than expected. And if export frameworks evolve further to allow next-gen Blackwell chips, Nvidia’s China story could reaccelerate beyond H20.
The chips are falling into place…
Please note that I am not a registered investment advisor and readers should do their own due diligence before investing in this or any other stock. I am not responsible for the investment decisions made by individuals after reading this article. Readers are asked not to rely on the opinions and analysis expressed in the article and encouraged to do their own research before investing.