NVIDIA's China Crossroads: Can Margin Gains Offset Geopolitical Headwinds?

The $5.5 billion write-off NVIDIA reported in April 2025—stemming from U.S. export restrictions on its H200 GPUs to China—marks a pivotal moment for the AI chip giant. While the immediate financial hit is undeniable, the move underscores a broader strategic dilemma: how to navigate geopolitical tensions while capitalizing on secular AI demand. For investors, the question is clear: Does this write-off signal a structural risk to NVIDIA's dominance, or is it a speed bump on the path to even greater profitability?

### The China Export Ban: A Near-Term Write-Off, But Long-Term Market Shift?
The $5.5 billion charge stems from the U.S. government's decision to require licenses for exporting H200 GPUs to China, which were originally designed to comply with earlier restrictions. The ban has effectively cut off a key revenue stream, as China's tech giants and hyperscalers had become major buyers of NVIDIA's chips. Analysts estimate that China represented roughly 20% of NVIDIA's AI chip sales pre-ban, and while the write-off is a one-time hit, the ongoing restrictions could reduce annual revenue by $8 billion or more.

Yet, the write-off also reflects a strategic pivot. NVIDIA has begun shifting its China sales strategy, prioritizing higher-margin products like its Blackwell series (H100, H200, and the upcoming Blackwell Ultra) over lower-margin mass-market GPUs. This focus on premium AI infrastructure—where NVIDIA's ecosystem (CUDA, Omniverse) and partnerships (e.g., Europe's industrial AI cloud) remain unmatched—could offset near-term losses.

### Margin Pressures vs. Blackwell's Upside: A Balancing Act
NVIDIA's gross margins have dipped to 71% in early 2025 from 75% in 2024 due to rapid production scaling for Blackwell chips. However, the Blackwell Ultra, slated for mass production by late 2025, offers a clear path to margin recovery. Priced at $35,000 per chip and targeting hyperscalers and governments for exascale computing, the Ultra's margins could hit 1,000%—comparable to the H100's margins—while its energy efficiency and token throughput superiority may solidify NVIDIA's lead in cloud AI.



### AMD's Challenge: A Double-Edged Sword
Competitor AMD faces its own China-related headwinds, with $700 million in Q2 2025 revenue lost due to export restrictions on its MI300X chips. Yet AMD's response—accelerating the rollout of MI350 series accelerators (not subject to the same curbs) and diversifying markets into Taiwan, South Korea, and the EU—highlights its agility. Oracle's adoption of AMD's MI355X accelerators and the Helios rack-scale system (a 72-GPU cluster) suggests AMD is making inroads into data center markets.

However, NVIDIA retains a critical advantage: its CUDA ecosystem. While AMD's ROCm software is improving, it remains a distant second in developer mindshare. NVIDIA's partnerships with Microsoft, Meta, and Alibaba (despite the China ban) further entrench its position.

### Wall Street's Bullish Thesis: A $100 Billion Runway Ahead
Analysts are undeterred by the near-term pain. Barclays recently raised NVIDIA's price target to $200 (a +38% upside from its 2025 price), citing its “$100 billion+ annual AI chip revenue potential by 2027.” The firm also notes that NVIDIA's system sales (pre-configured AI servers) now account for nearly 50% of revenue, offering higher margins and lock-in effects.

AMD's $133.32 average price target reflects optimism too, though risks remain. Its stock trades at 40.2x forward earnings—a premium to NVIDIA's 26x—due to its faster data center growth (57% YoY in Q2 2025). Still, AMD's valuation hinges on overcoming China's export bans and out-executing NVIDIA on cost and performance.

### The Investment Case: Buy NVIDIA's Dip, Monitor AMD's Risks
For investors, NVIDIA's $5.5 billion write-off is a buying opportunity. The stock's dip to ~$140 (down from $200+ in 2023) reflects fear of China exposure, but the long-term AI market is too vast to ignore. NVIDIA's Blackwell Ultra, enterprise AI infrastructure dominance, and ~$1 trillion in global data center capex by 2028 (per CEO Jensen Huang) justify a strategic long position.



Historical backtests show that a simple buy-and-hold strategy around NVIDIA's earnings announcements since 2020 generated an average annual return of 2.71%, though this underperformed the broader market. The strategy faced significant volatility, with a maximum drawdown of -38.48%, highlighting the risks of short-term timing. Investors should prioritize NVIDIA's long-term AI tailwinds over short-term noise, using dips below $150 as entry points while remaining mindful of geopolitical risks.

AMD, while intriguing, is a riskier play. Its $1.5 billion China revenue loss is a meaningful drag, and its margin expansion depends on unproven 2026 products like the MI400 series. Until geopolitical tensions ease or AMD's ROCm ecosystem gains traction, NVIDIA remains the safer bet.

### Final Verdict: NVIDIA is a Long-Term Winner—Buy on Dips
The U.S.-China tech war is far from over, but NVIDIA's ecosystem, margin profile, and first-mover advantage in AI infrastructure position it to dominate the $500 billion AI chip market. While AMD and others will nibble at the edges, NVIDIA's secular growth story—and its ability to turn Blackwell's potential into profits—makes it a must-own for long-term investors.



Investors should use dips below $150 as entry points, mindful of geopolitical risks but confident in NVIDIA's ability to navigate them. The AI revolution isn't just a trend—it's a generational shift, and NVIDIA is its king.