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Nvidia (NASDAQ:NVDA) is working to keep its grip on the Chinese market after U.S. regulators effectively blocked its H20 AI chip without an export license. In response, the chipmaker is prepping a downgraded version slated for release by July, with sources saying it will have significantly reduced memory capacity to align with the new U.S. restrictions. Despite the adjustments, China remains a vital market for Nvidia, raking in $17 billion in revenue for the fiscal year ended January 26 a number CEO Jensen Huang underscored during his recent visit to Beijing.
Major Chinese players like Tencent (TCEHY), Alibaba (NYSE:BABA), and ByteDance had ramped up H20 orders earlier this year, seeking cost-effective AI solutions as U.S.-China tech tensions heated up. Nvidia reportedly secured $18 billion in orders for the H20 since January, but the new restrictions now force the company to pivot. Sources indicate that customers might adjust module configurations to extract more performance from the modified chip, though specifics remain vague. Nvidia has yet to comment, and the U.S. Commerce Department remains silent as well.
The stakes couldn't be higher for Nvidia as it walks a tightrope between regulatory compliance and maintaining market share in one of its most lucrative regions. With geopolitical risks mounting, investors will be watching closely to see how the modified H20 chip is received and whether Nvidia can keep its AI ambitions alive in a market that's both a cash cow and a geopolitically sensitive market.
This article first appeared on GuruFocus.