Nvidia's China Pivot: A $15B Win Amid Tech Policy Truce

The U.S. decision to lift restrictions on Nvidia's H20 AI chip sales to China marks a pivotal moment in the evolving U.S.-China tech rivalry. This strategic reversal not only unlocks up to $10–$12 billion in deferred revenue for Nvidia but also signals a pragmatic truce in the broader decoupling narrative. For investors, the move presents a near-term catalyst for profitability while underscoring long-term risks tied to China's push for semiconductor self-reliance.

The Immediate Financial Boost

Nvidia's resumption of H20 sales to China reverses a $4.5 billion inventory write-off from April 2024, when export bans first took effect. The company now anticipates delivering to pent-up demand from Chinese tech giants like Alibaba, Tencent, and ByteDance, which had queued orders for AI infrastructure. Analysts estimate this could recover a substantial portion of the $15 billion in lost revenue cited by CEO Jensen Huang.

The stock market has already reacted: Nvidia's shares surged 4.47% in pre-market trading to $171.40, with Wall Street eyeing a $200 price target if sales ramp up. This optimism is justified, as the H20 remains unmatched in China for critical tasks like running large AI models, outperforming local rivals like Huawei's Ascend 910 in memory bandwidth (1,200 GB/s vs. 600 GB/s).

Structural Tailwinds for AI Chip Demand

China's ambition to build exascale supercomputers and its $400 billion AI investment pledge by 2027 create a massive structural tailwind for Nvidia. The H20's role in “inference” – deploying pre-trained models for industries like smart manufacturing and logistics – makes it indispensable for enterprises and state-backed projects.

Nvidia's new RTX Pro chip, priced lower and simplified to comply with U.S. rules, further taps into this demand. This product strategy balances regulatory constraints with market needs, ensuring dominance in China's industrial AI applications. Meanwhile, partnerships with Alibaba and Tencent – which rely on Nvidia's CUDA software ecosystem – reinforce the company's lock on the AI infrastructure stack.

Long-Term Risks: China's Self-Reliance Play

Despite the near-term upside, risks loom. China's semiconductor self-reliance efforts are accelerating, with Huawei's new Ascend 920 chip narrowing the performance gap. Local players backed by state subsidies could erode Nvidia's market share over time.

Moreover, the U.S. “whitelist” mechanism – requiring case-by-case export licenses for advanced chips – introduces uncertainty. While current approvals suggest a thaw, future restrictions on volume or specifications could resurface if geopolitical tensions flare. Investors must also monitor China's push to diversify supply chains, with firms like Baidu exploring alternatives to U.S. tech.

Investment Thesis: Near-Term Win, Long-Term Caution

The resumption of H20 sales is a clear buy signal for Nvidia in the short term. The $10–$12 billion revenue boost could propel earnings growth of 8–10% in fiscal 2026, while the stock trades at a forward P/E of 28x, below its 30% AI revenue growth trajectory.

Historically, when Nvidia has exceeded earnings expectations, its stock has shown a trend of rising, with a maximum 30-day return of 2.25% following an April 2025 beat. This underscores the near-term upside potential of the current revenue recovery.

However, investors should hedge against long-term risks. China's $400 billion AI spending could backfire if local firms achieve breakthroughs, reducing reliance on U.S. chips. Diversification into suppliers like Samsung (Nvidia's sole GDDR7 memory partner) or Chinese semiconductor stocks may mitigate exposure.

Conclusion

Nvidia's China pivot is a strategic win that capitalizes on U.S. pragmatism and China's AI ambitions. While near-term gains are secure, investors must remain vigilant about self-reliance efforts and geopolitical volatility. For now, the truce fuels a profitable chapter for Nvidia – but the ultimate battle for tech dominance is far from over.