Nvidia Faces Dilemma After Chinese Firms Rush to Order $16 Billion in New AI Chips
The Takeaway
•Chinese firms are stockpiling Nvidia H20 chips ahead of a potential U.S. ban on their sale
•Nvidia hasn’t booked enough chipmaking capacity to fill the new orders
•Customers could request refunds if the U.S. restricts H20s before their delivery
Chinese companies including ByteDance, Alibaba Group and Tencent Holdings have placed at least $16 billion in orders for Nvidia’s H20 server chips for running artificial intelligence in the first three months of the year, ahead of a potential U.S. ban on sales of the chip in China, according to two people with direct knowledge of the transactions.
The orders represent a sizable windfall for Nvidia—but only if it can deliver the chips in advance of the new restrictions. Nvidia generated $17 billion from sales in China in the 12 months that ended Jan. 26, 13% of its total revenue.
The surge in demand presents a challenge, as Nvidia must decide whether to proceed with making the chips so it can pocket the revenue or risk wasting the effort if the ban materializes.
The H20 is the most powerful AI chip Nvidia is permitted to sell to China since U.S. export controls banned sale of the company’s most advanced chips in the country based on national security concerns. H20s are 15 times slower in making calculations than Nvidia’s Blackwell chips, which the company sells in most markets outside China.
However, Nvidia recently upgraded the H20 by combining it with the same powerful, high-bandwidth memory chips it uses for the Blackwell system, according to the two people with direct knowledge of the H20 orders. Most Chinese companies have ordered the upgraded version, which bolsters performance for training and running AI, these people said.
President Donald Trump’s administration has been considering banning the sale of H20s to China to further curb Beijing’s technological rise, according to two people with direct knowledge of the deliberations. The threat of a possible ban prompted China’s technology incumbents to increase their orders in recent weeks.
Nvidia declined to comment. ByteDance, Alibaba and Tencent did not reply to requests for comment. The White House didn’t immediately respond to a request for comment. Bloomberg earlier reported on the potential H20 restriction.
Chinese companies have been steadily increasing their orders for the H20 since the January release of an AI model from DeepSeek that operates more efficiently than some American-made models from firms such as OpenAI. This development made H20 chips more useful to the Chinese companies.
The breakthrough by DeepSeek, which is based in China, similarly sparked demand for Nvidia gaming chips, which Chinese firms have retrofitted to run AI. Businesses around the world have also been flocking to DeepSeek models to save on AI costs.
The surge in demand for H20s poses a dilemma for Nvidia, however.
Nvidia hasn’t booked enough chip production capacity at its manufacturing partner, Taiwan Semiconductor Manufacturing Co., to meet increasing demand, the two people said. Nvidia and TSMC can ramp up capacity, but producing so many H20 chips could take up to six months, meaning many of the orders won’t be ready for delivery until the fourth quarter, the people said.
If Nvidia decides to move forward with reserving additional chipmaking capacity for H20s with TSMC, that would run the risk of having to find new buyers when the ban comes into effect before it can deliver the orders. Given that the H20 is much inferior compared to the Blackwell, Nvidia might have to offer substantial price concessions in order to sell them to non-Chinese customers.
And if the U.S. moves to restrict H20s before Nvidia delivers the chips, customers could request refunds, and the company would have to find new buyers for the inventory, the two people said.
TSMC said it doesn’t comment on individual customer or market speculation.
‘Formidable’ Huawei
Nvidia CEO Jensen Huang has repeatedly cautioned against strict export controls, saying such measures could strengthen local Chinese competition that seeks to take the lead on supplying AI chips in the country. He previously called Huawei Technologies, which has been spearheading China’s efforts to design its own AI chips, the “single most formidable” tech company in the country.
The share of Nvidia’s revenue from China has been declining since the U.S. first introduced chip export restrictions in late 2022, a year in which the company generated 21% of revenue from that country. But in dollar terms, China sales rose 70% in the fiscal year that ended Jan. 26 as Nvidia saw a boom in demand for its chips in the post-ChatGPT era.
However, that may not reflect the totality of sales to Chinese firms. Singapore rose to become the second-largest market for Nvidia after the U.S., contributing 18% of its revenue during the same period. Yet Nvidia said it ships the vast majority of those sales outside Singapore, because its customers use the city-state to “centralize invoicing.” Singapore is a popular business hub for Chinese firms’s overseas operations.
Chinese firms such as ByteDance also can purchase or rent Nvidia’s most advanced chips as long as they use them outside China. For instance, ByteDance has been renting Nvidia chips in the U.S. from Oracle, as well as using data centers equipped with Nvidia chips in Singapore and other Southeast Asian countries.
It isn’t clear if the new H20 orders could increase Nvidia’s ballooning accounts receivable, the unpaid balances from products or services it has delivered.
The company’s accounts receivable surged to $23 billion as of the end of January from $10 billion a year earlier—far outpacing revenue growth. The trend prompted some investors to question whether Nvidia might have put some revenue on its books too soon.
The growth in accounts receivable could also be a result of Nvidia entering a new product cycle with Blackwell chips. It takes time for customers to get the new chips up and running, as they require a different cooling mechanism in data centers. Customers may not make payments until the chips are humming.