Nvidia's Return to China: Igniting the AI Supercycle and Nasdaq's Next Leg Up

The U.S. decision to lift export restrictions on Nvidia's H20 AI chips marks a pivotal shift in the tech war with China, unlocking a $8 billion revenue recovery pipeline for the company by Q4 2026 and reigniting the AI supercycle narrative. This policy reversal not only resolves a critical growth overhang for Nvidia but also validates the enduring strategic importance of semiconductor leadership in reshaping global technology markets. For investors, the implications are profound: Nasdaq's tech-heavy composition stands to benefit from a re-rating of AI-driven valuations, while peers like TSMC and AMD face both tailwinds and headwinds from this recalibration.

The Policy Pivot: From Conflict to Pragmatism

The Biden administration's scrapped AI Diffusion Rule—a sweeping measure that would have imposed tiered export controls on advanced chips—has been replaced by a more nuanced approach under the Trump administration. By halting new restrictions on the H20 and rescinding the prior rule, policymakers prioritized two objectives: (1) easing compliance burdens on U.S. firms to sustain AI innovation and (2) avoiding further escalation of tensions with China. The $16 billion stockpile of H20 chips accumulated by Chinese buyers in Q1 2025, anticipating a ban, underscores the scale of pent-up demand now set to flow back into Nvidia's coffers.

The strategic logic is clear: while new Entity List additions target Chinese military and quantum tech entities, the H20's exemption reflects a recognition that China's AI ecosystem remains reliant on U.S. hardware. This pragmatic stance avoids the counterproductive outcome of accelerating China's semiconductor self-sufficiency—a risk if the U.S. had cut off supply entirely.

The $8 Billion Revenue Recovery: Analysts See a $20B Window

The $8 billion figure cited in the user's prompt represents the estimated revenue loss Nvidia faced in Q2 2025 due to export controls. However, analysts now project a far more optimistic trajectory. Melius Research and Bernstein estimate that if licenses are granted for a downgraded H20 variant, Nvidia could recover $15–$20 billion in China revenue by late 2026. This would translate to a 40–50 cent upside to earnings per share (EPS), with every $10 billion in recovered sales adding ~25 cents to EPS.

The technicals back this optimism. Nvidia's gross margins, which dipped to the mid-70s due to inventory write-downs, could rebound sharply if H20 sales resume. Cantor analysts note that selling existing inventory at full price would push margins near 100%, a windfall for profitability. The stock's current positioning—down 20% from its 2023 peak but with a robust order book—suggests it's primed for a rebound.

Ripple Effects on the Semiconductor Sector

The Nasdaq Composite, heavily weighted in tech, stands to benefit from a re-rating of AI valuations. Nvidia's leadership in GPU-driven AI training positions it as a bellwether for the sector's health. A successful H20 relaunch could validate the AI supercycle thesis, boosting multiples for peers like AMD (which faces direct competition) and TSMC (the primary manufacturer of advanced chips).

• TSMC: As the sole foundry for advanced AI chips, TSMC's 3nm and 2nm nodes are critical to sustaining the supercycle. A revival in U.S.-China chip trade could lift its revenue growth, though geopolitical risks linger.
• AMD: While its MI300X chip competes with the H20, AMD's broader portfolio (CPUs, GPUs, and software) offers diversification. However, its valuation may hinge on how quickly it closes the AI performance gap with Nvidia.

Investment Thesis: Buy Nvidia with a $235+ Target

The catalysts are clear: (1) resumed H20 sales to China, (2) licensing approvals for compliant chip variants, and (3) a broader easing of U.S. export policies. Melius' $235 price target—implying a $5.7 trillion market cap—assumes full revenue recovery and margin expansion. Risks include delays in license approvals and China's progress in domestic chip production, but the balance of probabilities favors upside.

For investors, Nvidia's stock represents a leveraged play on the AI supercycle. With a current price near $180, the risk-reward skew tilts decisively bullish. The Nasdaq, in turn, could see a reacceleration in tech multiples if AI adoption metrics (e.g., cloud computing spend, enterprise AI deployments) improve.

Conclusion: The AI Supercycle's Rebirth

The U.S.-China detente on chip exports isn't just a win for Nvidia—it's a validation of the AI supercycle's staying power. By prioritizing economic pragmatism over maximalist restrictions, policymakers have created a pathway for tech stocks to regain momentum. For Nasdaq investors, this is more than a sector story; it's a reaffirmation of the digital economy's dominance. Buy Nvidia now, and position for the Nasdaq's next leg up.

Rating: Buy
Price Target: $235+ (bullish scenario)