Nvidia Stock (NVDA) Lower Despite China Green Light for H200 Chips, But Why?

Nvidia's stock is slightly lower today, despite the U.S. government's decision to permit the export of its H200 artificial intelligence (AI) chips to China, under specific conditions. Shares of Nvidia (NVDA) were trading approximately 0.4% lower despite the news, indicating that markets are weighing multiple factors beyond the initial positive headline.

While the U.S. government's decision today seemingly opened a significant market for Nvidia, several counter currents are influencing investor sentiment. One key concern revolves around potential restrictions by Chinese regulators on access to the H200 chips.

Reports suggest that Chinese authorities are considering requiring buyers to justify why local alternatives are insufficient, aligning with China's broader push for semiconductor self-sufficiency. Such a policy could significantly limit the demand for Nvidia's chips, offsetting the benefits of the export approval.

Adding to the uncertainty, recent legal actions highlight the challenges of controlling technology exports. The U.S. Department of Justice has charged individuals with attempting to smuggle Nvidia's H100 and H200 chips to China, underscoring the risks and enforcement efforts surrounding export regulations. These actions serve as a reminder of the stringent oversight and potential disruptions in the supply chain.

Nvidia CEO Jensen Huang himself has expressed uncertainty about whether Chinese companies will purchase the H200 chips, even with relaxed export restrictions. He noted that China's increasing focus on developing domestic AI technologies might reduce interest in Nvidia's offerings. This internal perspective adds another layer of unpredictability to the company's prospects in the Chinese market.

Analyst perspectives on the financial impact of the export approval are mixed. Wells Fargo analyst Aaron Rakers views the development as an incremental positive, estimating a potential $25-$30 billion in annual revenue and a $0.60-$0.70 increase in earnings per share. However, some analysts caution that the actual impact may be limited unless more advanced chips, such as the Blackwell series, are also approved for export. 

While the green light for H200 chip exports to China initially appeared positive, with NVDA up strongly in the pre-market, the decline through the open today reflects the market's recognition that this may not being a slam dunk for Nvidia that it may have first appeared.