Nvidia (NVDA) To Make New AI Chips for Chinese Markets

Nvidia (NASDAQ: NVDA) is said to be crafting cheaper and simpler versions of its Blackwell AI chips specifically for the Chinese market. This move is being made in response to recent tightening of export restrictions on the company's high-performance H20 chips.

Nvidia's stock has been a notable winner of the artificial intelligence revolution, yet has been slowed by restrictions in recent months. The YTD decline of 5% stands in sharp contrast to previous years, when NVDA had been almost a runaway train, up and to the right.

These new versions chips are said to feature weaker specifications compared to the H20 models and will be produced through less complex manufacturing processes.

The ongoing export curbs have significant financial implications for Nvidia. They are expected to lead to a $5.5 billion inventory write-off and potentially a $15 billion loss in sales. The new chips will be priced between $6,500 and $8,000, a noticeable reduction from the $10,000 to $12,000 price range of the advanced H20 chips.

A distinct change in the new chip design is the use of traditional GDDR7 memory, allowing Nvidia to steer clear of the restrictions that apply to chips with high bandwidth memory (HBM). Additionally, the chips will be based on Nvidia's older RTX Pro 6000D processor, and won't utilize Taiwan Semiconductor Manufacturing's CoWoS packaging technology.

This strategic adaptation marks the third instance of Nvidia altering its chip specifications to remain compliant with U.S. export regulations. This shift comes amid a notable decline in the company's sales in China, down to 13% in Fiscal Year 2024. Nvidia's CEO, Jensen Huang, highlighted that the company's market share in China has dropped to 50%, from 95% prior to the 2022 export restrictions, amid rising competition from local players like Huawei.

Huang maintains a positive outlook on China’s chip market, anticipating it could grow to a $50 billion market in future years. Wall Street continues to hold a bullish view on Nvidia's long-term prospects, despite the challenges posed by the export limitations.

Since the beginning of this month, there have been a couple of price target revisions from BofA and UBS on Nvidia's shares. BofA have raised the firms target price from $150 to $160 and the firm also keeps a “Buy” rating on the shares. UBS have revised the target price the other way, by lowering their target price from $180 to $175, but the firm maintains a “Buy” rating on the shares.

The company's stock has been rated as a Strong Buy by many analysts, with a significant number recommending buys. With the average target price being $162.77 and the share price now sitting low at $131.29, there remains substantial perceived upside from here according to the street. With U.S markets closed for Memorial Day, attention now turns to Nvidia's upcoming earnings later in the week.