NVIDIA expects to recognize a $5.5 billion expense in 2025 due to U.S. restrictions on H20 chips exports to China.

Taiwan • Business • 04/16 02:52
NVIDIA expects to recognize a $5.5 billion expense in 2025 due to U.S. restrictions on H20 chips exports to China.

U.S. chip giant Nvidia is expected to recognize a $5.5 billion charge in the first quarter of fiscal year 2025 due to new U.S. government restrictions on exporting its H20 AI chips to China. The H20 chip was originally a downgraded version to comply with previous regulations, but it is still considered by the U.S. as potentially usable in China's supercomputer construction. This policy change has severely hit Nvidia's revenue expectations in China and triggered market turbulence, leading to its stock price dropping over 6% after hours.

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NVIDIA expects to recognize a $5.5 billion expense in 2025 due to U.S. restrictions on H20 chips exports to China.

U.S. chip giant Nvidia is expected to recognize a $5.5 billion charge in the first quarter of fiscal year 2025 due to new U.S. government restrictions on exporting its H20 AI chips to China. The H20 chip was originally a downgraded version to comply with previous regulations, but it is still considered by the U.S. as potentially usable in China's supercomputer construction. This policy change has severely hit Nvidia's revenue expectations in China and triggered market turbulence, leading to its stock price dropping over 6% after hours.

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H20 Chip Background and Policy Changes

The H20 chip is an AI graphics processing unit (GPU) launched by NVIDIA in 2023, specifically designed for the Chinese market. Its performance has been "performance-restricted," with computing power at only about 14% of the flagship H100 chip, to comply with the U.S. export control regulations at the time. However, despite the limitations in computing power, the H20's memory performance and connectivity remain advantageous, sufficient to support the inference phase of AI models, and have been adopted by several Chinese tech giants, including Tencent, Alibaba, and ByteDance.

On April 14, 2025, the U.S. government officially notified NVIDIA that future exports of the H20 chip to China would require an export license, and this regulation is of "indefinite" duration. The U.S. Department of Commerce stated that this move is to prevent the chips from being used or repurposed for China's supercomputer construction, further strengthening the export review of advanced computing technology.

Financial Impact and Company Response

In an 8-K filing with the U.S. Securities and Exchange Commission (SEC), NVIDIA stated that it would recognize approximately $5.5 billion in expenses in the first fiscal quarter ending April 27, 2025. This expense covers inventory, procurement commitments, and related reserves associated with the H20 chip. The company noted that these chips were originally intended for the Chinese market, but under the new regulations, shipments will face major uncertainty.

According to estimates by Bernstein analysts, the H20 chip was initially expected to generate about $12 billion to $15 billion in revenue for NVIDIA in 2025, accounting for the vast majority of its total revenue from the Chinese market. If exports are restricted, NVIDIA's annual revenue could decrease by $14 billion to $18 billion.

NVIDIA CEO Jensen Huang mentioned in a February earnings call that revenue from the Chinese market had already halved due to previous export restrictions and warned that the rise of local competitors like Huawei would intensify market pressure. The further restriction on the H20 chip further weakens NVIDIA's market presence in China.

Market Reaction and Supply Chain Chain Effects

Following the announcement, NVIDIA's stock price fell more than 6% in after-hours trading on April 15, closing at $105.87. Competitor AMD also saw its stock price drop as its MI308 chip was similarly included in the export restriction list.

In the supply chain, TSMC, one of the main foundries for the H20 chip, may also be affected. Bloomberg analysts pointed out that if NVIDIA's shipments to China continue to be restricted, TSMC's CoWoS advanced packaging capacity utilization might further decline, impacting its short-term revenue performance.

Policy Background and Basis for Implementation

The legal basis for this export restriction comes from the U.S. Department of Commerce's Bureau of Industry and Security (BIS) under the regulation "15 CFR § 744.23," which prohibits the export of advanced chips that can be used in supercomputers to certain countries, such as China. Although the H20 chip does not meet the previous control thresholds in technical parameters, the U.S. side determined that its actual use might still violate the "ultimate use" regulations.

According to a report by the non-partisan think tank Institute for Progress (IFP), Tencent and AI startup DeepSeek have deployed H20 chips in their facilities for large language model training, which may have violated current export controls. The report noted that if 13 million H20 chips are delivered to Chinese companies as scheduled, it would significantly enhance China's computing power in the AI field.

Company Strategy and Future Directions

Despite facing export restrictions, NVIDIA still emphasizes its commitment to investing in the U.S. The company recently announced plans to build AI infrastructure worth $500 billion in the U.S. over the next four years, including supercomputers and data centers. This move has been described by the White House as a concrete result of the "Trump administration effect."

However, according to multiple media reports, even though NVIDIA executives have met with the Trump administration and pledged investment, the U.S. side has not relaxed the export restrictions on the H20 chip. This indicates that policy execution will prioritize national security concerns, and corporate commitments are unlikely to sway export review decisions.

References

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