Nvidia to Make $12 Billion in AI Chips in China This Year Despite US Scrutiny

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Nvidia is on track to sell $12 billion in artificial intelligence chips in China this year despite U.S. export controls that have stifled the company’s business in one of the world’s largest semiconductor markets.

The $3 trillion Silicon Valley conglomerate will offer more than 1 million products in the coming months new H20 chipdesigned to stay out of US restrictions on selling AI processors to Chinese customers, analysts predict.

That’s nearly double the expected sales of Huawei’s China-made rival, the Ascend 910B, according to estimates from SemiAnalysis, a chip consultancy.

Nvidia is the latest Silicon Valley company to find itself caught in the crossfire between Washington and Beijing. The Biden administration wants to stop the flow of the world’s most powerful chips to China, fearing Beijing could use them to create more powerful AI systems with military applications.

The AI ​​shortage is therefore French fries has affected the ability of Chinese tech giants like ByteDance, Tencent and Alibaba to compete with US-based OpenAI, Microsoft, Meta and Google in a technology that is reshaping the industry.

Each H20 chip costs between $12,000 and $13,000, suggesting Nvidia could potentially generate as much as $12 billion in sales. That would be more than the $10.3 billion in revenue from its entire China business — which includes sales of graphics chips to PC gamers and other products — in the fiscal year ending January 2024.

Nvidia declined to comment on the forecast. Huawei also did not respond to a request for comment.

Since the Biden administration first introduce the limitations Nvidia’s ability to sell its most powerful AI chip in China in 2022 has been hampered by the US company’s warning that its business will suffer as cloud computing providers and AI startups there turn to domestic alternatives such as Huawei.

“Our business in China is significantly lower than what it was,” Nvidia CEO Jensen Huang said on the company’s most recent earnings call in May. “And now, the business in China is much more competitive, given our technology constraints… However, we continue to work hard to serve our customers in those markets.”

Nvidia’s chief financial officer, Colette Kress, said on the same call that revenue from the company’s data center segment — which includes AI chips — in China in the most recent quarter was “down significantly from levels prior to the imposition of new export control restrictions in October.”

As recently as 2021, before the U.S. began imposing export controls, China accounted for more than a quarter of Nvidia’s total revenue. Even if the H20 chip sells as well as analysts expect, China could account for closer to 10 percent of sales this year. But that also reflects big growth is what Nvidia is seeing from US tech companies as they build increasingly powerful AI systems.

While Nvidia’s sales in China were lower before the new H20 launched this spring, analysts at Morgan Stanley and SemiAnalysis both said the chip is now shipping in high volumes and is proving popular with Chinese customers, despite its performance being downgraded compared to chips Nvidia can sell in the United States.

“Buyers reported positive feedback on the potential competitiveness of H20 clusters,” Morgan Stanley wrote in a research note to clients this week, pointing to “strong demand from China.”

Dylan Patel, of SemiAnalysis, said that while the H20’s capabilities are “on paper” inferior to Huawei’s 910B, in practice Nvidia’s chip is “slightly superior” thanks to its superior memory performance.

He estimated that Huawei would sell around 550,000 910B chips in the same period, as the Shenzhen-based company and its manufacturing partners struggle to produce the complex processor in large enough quantities to meet demand.

Most Chinese AI companies have also built their AI models on Nvidia’s ecosystem and software. Switching to Huawei’s infrastructure would be time-consuming and costly.

The Biden administration has placed restrictions on Nvidia’s ability to sell its most powerful chips, including the A100 and H100, to China through October 2022. It continues tighten those controls late last year to exclude even Nvidia’s newer chips. By November, Nvidia had begun marketing a new set of chips tailored for China, of which the H20 was the most powerful.

Including chips for PC gamers, data centers and other customers, China accounted for about 9 percent of Nvidia’s total revenue in the most recent quarter ended in April, down from 22 percent in the same period a year earlier. Still, total revenue from China, including Hong Kong, grew during that time, up more than 50 percent from the same period a year earlier to $2.5 billion.