Nvidia's Blackwell Chip Deal with China: A Shift in US Policy

Nvidia may be allowed to sell a scaled-back version of its AI chip, Blackwell, to China if it can be designed to be less advanced. US President Donald Trump has expressed openness to a deal that would allow Nvidia to ship the chip to China with 30-50% reduced functionality. This change in policy could enable Nvidia to sell more chips to China.

NVIDIA Corporation (NVDA) has reported strong second-quarter fiscal 2026 results, with revenues surging 56% year-over-year to $46.7 billion, driven by its robust data center business [1]. The company’s Blackwell platform, particularly the GB300 chip, has seen high-volume shipments exceeding 1,000 racks per week. Customers are drawn to Blackwell’s energy efficiency and performance gains compared to NVIDIA’s Hopper chips, making it a preferred choice for advanced AI workloads [1].

NVIDIA anticipates revenues of $54 billion for the third quarter, representing 55% year-over-year growth and a 16% sequential rise. This forecast excludes potential sales of H20 chips to China, leaving room for upside if export approvals materialize. Gross margins are projected to expand to 73.5%, reflecting strong demand and operational leverage [1].

The Trump administration has reversed course on NVIDIA’s H20 AI chips, lifting previous restrictions and considering exports of a scaled-back version of Blackwell to China. This change in policy could enable NVIDIA to sell more chips to China, potentially driving further growth [2]. However, critics argue that selling U.S. AI chips to China is unlikely to create lasting dependencies on the American tech ecosystem, as AI chips are akin to generators that can be swapped out or integrated with local infrastructure [2].

NVIDIA’s competitors, Advanced Micro Devices (AMD) and Intel (INTC), are stepping up their capabilities in the data center AI chip market. AMD’s MI300X GPUs and Intel’s Gaudi 3 AI chips are gaining attention as alternatives to NVIDIA’s Blackwell, particularly in cost-sensitive or specialized workloads [1]. Both companies are building strong software stacks to attract more customers.

From a valuation standpoint, NVIDIA shares have risen around 29.3% year-to-date compared to the Zacks Computer and Technology sector’s gain of 12.9%. NVIDIA trades at a forward price-to-earnings ratio of 33.37, higher than the sector’s average of 27.63. The Zacks Consensus Estimate for NVIDIA’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 44.5% and 35.3%, respectively [1].

In conclusion, NVIDIA’s strong Q2 results and potential sales to China could drive further growth, but competition in the AI infrastructure market is heating up. Investors should closely monitor NVIDIA’s ability to maintain its market leadership and adapt to changing export policies.

References:
[1] https://www.nasdaq.com/articles/nvidias-q2-sales-hit-46b-can-blackwell-ramp-deliver-54b-q3
[2] https://www.justsecurity.org/119874/ai-chips-china-us-tech/