Nvidia’s Stock Looks Set to Soar on Resumption of H20 AI Chip Sales to China
This is great news for investors and should help propel Nvidia stock higher.
Nvidia’s announcement of resuming H20 AI chip sales to China is a significant development that could propel the company’s stock higher. This news is crucial for Indian investors who have been impacted by the halt in sales earlier this year.
Nvidia’s email announcement credited CEO Jensen Huang for the H20 news, stating that he ‘has been promoting AI this month in Washington, DC, and China — emphasizing the benefits that AI will bring to business and society worldwide.’
But here’s the core message for investors contained in Nvidia’s email announcement: ‘NVIDIA is filing applications to sell the NVIDIA H20 GPU [graphics processing unit] again. The U.S. government has assured NVIDIA that licenses will be granted, and NVIDIA hopes to start deliveries soon.’
As I wrote at the time: ‘Nvidia stock fell 6.9% on Wednesday [April 16], following the tech giant’s Tuesday night disclosure via a filing with the U.S. Securities and Exchange Commission (SEC) that it plans to take charges of up to $5.5 billion on its fiscal first-quarter results. The charges stem from the U.S. government enacting restrictions on the export of its H20 chip to China and select other countries.’
As it ended up, Nvidia took charges (for H20 products in inventory and purchase commitments) of less than the maximum that it had originally estimated. In late May, when it reported its fiscal first-quarter results, the total H20-associated charges were $4.5 billion. Yes, that’s still huge.
First, let’s consider how the halt in H20 sales in mid-April affected Nvidia’s results for its fiscal Q1 (ended on April 27). Its results were considerably hurt by this event.
In addition to taking the $4.5 billion in charges, the company was unable to ship $2.5 billion in H20 chips that it had already produced. In other words, it ‘lost’ sales of $2.5 billion. However, it was able to book H20 sales of $4.6 billion in the quarter prior to the implementation of the new export controls.
Nvidia’s Q1 total revenue was $44.1 billion. So, its $4.6 billion in H20 sales to China accounted for 10.4% of its total revenue. And had the company been able to ship the additional $2.5 billion in H20 chips, its H20 sales would have been $7.1 billion and 16.1% of its total revenue. This is a big chunk of total revenue and clearly shows the significance of the Chinese market.
The good news is that investors can probably expect Nvidia’s quarterly H20 sales to resume in the general ballpark of where they left off, if not higher.
Monday night’s news is fantastic for the stock. Nvidia has been firing on all cylinders, but investor concern over the company losing its Chinese market for its data center AI chips has likely kept the stock from rising as much as it otherwise would.
This article was originally published onFool.com. All figures quoted in US dollars unless otherwise stated.
Beth McKenna has a position at Nvidia. The Motley Fool Australia’s parent company, Motley Fool Holdings Inc., has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
