Nvidia announced a potential write-off of up to $5.5 billion in its fiscal first quarter of 2026 (ending April 27, 2025) due to new U.S. export licensing requirements for its H20 chips shipped to China. The announcement, detailed in a stock market filing on April 14, 2025, follows the U.S. government's decision to impose stricter controls to prevent the chips from being used or diverted to supercomputing projects in China. This development marks a significant escalation in U.S. efforts to curb China's access to advanced AI technologies.
US Tightens Export Controls
The U.S. government introduced the export license requirement to address national security concerns, specifically the risk that Nvidia’s H20 chips could be used in Chinese supercomputers or diverted to military applications. The restrictions, which took effect immediately and are expected to remain in place indefinitely, build on earlier export controls implemented in October 2023. Those controls prompted Nvidia to reconfigure its high-end H100 chip into the lower-capacity H20 to comply with U.S. regulations while maintaining sales in China, a critical market for the company.
The H20 chip, Nvidia’s most advanced offering available in China, became a cornerstone of the company’s strategy to navigate the U.S.-China tech trade tensions. However, the new licensing rules have disrupted this approach, affecting not only Nvidia but also U.S.-based competitor AMD, whose AI chip exports to China now face similar restrictions.
Financial Impact: Inventory and Commitment Charges
Nvidia’s projected $5.5 billion write-down encompasses charges related to H20 inventory, purchase commitments, and associated reserves. The write-off reflects the company’s inability to sell its existing stock of H20 chips in China without export licenses, which are likely to be difficult to obtain given the U.S. government’s stance. Additionally, Nvidia faces challenges in redirecting these chips to other markets due to their reduced performance compared to its flagship products.
Industry analyst Richard Windsor, founder of Radio Free Mobile, noted that the H20 chip’s compute throughput is estimated at just 14% of Nvidia’s high-end H100 chip. This performance limitation makes the H20 less competitive in markets outside China, where buyers have access to more powerful alternatives. As a result, Nvidia may be forced to absorb significant financial losses tied to unsold inventory and unfulfilled contracts.
China’s AI Ambitions Persist
The U.S. export restrictions aim to slow China’s progress in developing cutting-edge AI technologies, particularly large language models (LLMs) that power advanced AI applications. However, Windsor expressed skepticism about the effectiveness of these measures, arguing that access to specific silicon is not the primary determinant of LLM development. Instead, he highlighted that the speed and cost-efficiency of producing and deploying LLMs are more critical factors.
Despite the restrictions, Chinese tech giants such as Tencent, Alibaba, and ByteDance have continued to invest heavily in AI. In late January 2025, these companies significantly increased their orders for Nvidia’s H20 chips, driven by a shift toward cost-effective LLM architectures inspired by DeepSeek, a Chinese AI startup. At the time, Nvidia’s H20 chips were not subject to export licensing, allowing the company to capitalize on surging demand. The new U.S. rules, however, have disrupted this momentum, forcing Chinese firms to reassess their AI development strategies.
Broader Implications: U.S.-China Tech Rivalry
The latest export controls underscore the intensifying technological rivalry between the U.S. and China, with AI chips at the heart of the competition. By targeting Nvidia’s H20 and AMD’s AI chips, the U.S. aims to limit China’s ability to build advanced AI infrastructure that could have military or economic implications. However, China’s domestic chip industry is rapidly evolving, with companies like Huawei and SMIC working to develop alternatives to U.S.-made semiconductors.
Nvidia’s predicament also highlights the broader challenges faced by U.S. tech companies operating in the global market. While Nvidia has benefited from explosive demand for AI chips worldwide, its reliance on China as a major market has exposed it to geopolitical risks. The company’s stock market filing did not provide guidance on how it plans to mitigate the impact of the write-off or adapt to the new restrictions, leaving investors and analysts awaiting further details.
US Tightens Export Controls
The U.S. government introduced the export license requirement to address national security concerns, specifically the risk that Nvidia’s H20 chips could be used in Chinese supercomputers or diverted to military applications. The restrictions, which took effect immediately and are expected to remain in place indefinitely, build on earlier export controls implemented in October 2023. Those controls prompted Nvidia to reconfigure its high-end H100 chip into the lower-capacity H20 to comply with U.S. regulations while maintaining sales in China, a critical market for the company.
The H20 chip, Nvidia’s most advanced offering available in China, became a cornerstone of the company’s strategy to navigate the U.S.-China tech trade tensions. However, the new licensing rules have disrupted this approach, affecting not only Nvidia but also U.S.-based competitor AMD, whose AI chip exports to China now face similar restrictions.
Financial Impact: Inventory and Commitment Charges
Nvidia’s projected $5.5 billion write-down encompasses charges related to H20 inventory, purchase commitments, and associated reserves. The write-off reflects the company’s inability to sell its existing stock of H20 chips in China without export licenses, which are likely to be difficult to obtain given the U.S. government’s stance. Additionally, Nvidia faces challenges in redirecting these chips to other markets due to their reduced performance compared to its flagship products.
Industry analyst Richard Windsor, founder of Radio Free Mobile, noted that the H20 chip’s compute throughput is estimated at just 14% of Nvidia’s high-end H100 chip. This performance limitation makes the H20 less competitive in markets outside China, where buyers have access to more powerful alternatives. As a result, Nvidia may be forced to absorb significant financial losses tied to unsold inventory and unfulfilled contracts.
China’s AI Ambitions Persist
The U.S. export restrictions aim to slow China’s progress in developing cutting-edge AI technologies, particularly large language models (LLMs) that power advanced AI applications. However, Windsor expressed skepticism about the effectiveness of these measures, arguing that access to specific silicon is not the primary determinant of LLM development. Instead, he highlighted that the speed and cost-efficiency of producing and deploying LLMs are more critical factors.
Despite the restrictions, Chinese tech giants such as Tencent, Alibaba, and ByteDance have continued to invest heavily in AI. In late January 2025, these companies significantly increased their orders for Nvidia’s H20 chips, driven by a shift toward cost-effective LLM architectures inspired by DeepSeek, a Chinese AI startup. At the time, Nvidia’s H20 chips were not subject to export licensing, allowing the company to capitalize on surging demand. The new U.S. rules, however, have disrupted this momentum, forcing Chinese firms to reassess their AI development strategies.
Broader Implications: U.S.-China Tech Rivalry
The latest export controls underscore the intensifying technological rivalry between the U.S. and China, with AI chips at the heart of the competition. By targeting Nvidia’s H20 and AMD’s AI chips, the U.S. aims to limit China’s ability to build advanced AI infrastructure that could have military or economic implications. However, China’s domestic chip industry is rapidly evolving, with companies like Huawei and SMIC working to develop alternatives to U.S.-made semiconductors.
Nvidia’s predicament also highlights the broader challenges faced by U.S. tech companies operating in the global market. While Nvidia has benefited from explosive demand for AI chips worldwide, its reliance on China as a major market has exposed it to geopolitical risks. The company’s stock market filing did not provide guidance on how it plans to mitigate the impact of the write-off or adapt to the new restrictions, leaving investors and analysts awaiting further details.
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