NVIDIA Returns to China
Following a pivotal U.S. policy shift in mid-July 2025, NVIDIA is racing to ramp up shipments of its H20 AI accelerator to China. The U.S. Commerce Department has granted export licenses, reversing April’s blockade rooted in national security—licenses NVIDIA began filing for immediately.
The H20, engineered to align with export limits yet priced about 50% lower than the flagship H100, remains highly capable for certain AI applications. This unlocks a sizable revenue stream: approximately 13% of NVIDIA’s annual sales (≈ $17 billion). The April restriction triggered a $4.5 billion inventory charge and wiped out around $2.5 billion in expected Q2 revenue, but analysts predict a $15–20 billion rebound. Investors responded positively—NVIDIA’s stock surged 4–5%, climbing to near $172–$174, lifting market cap to over $4 trillion. Strategically, NVIDIA is leveraging compliance-tier chips and geopolitical openings—including rare-earth concessions—as part of a broader dual-pronged push into China, reestablishing market dominance while navigating U.S.–China tensions and domestic chip competition.
Base Case: Gradual Recovery and Stable Compliance (60% probability)
In this most likely scenario, NVIDIA steadily resumes H20 chip shipments to China under the current export framework, recapturing a significant share of its prior China business while remaining within U.S. regulatory bounds. Revenue from Chinese clients returns to ~$15 billion annually by mid-2026, offsetting the recent $4.5 billion inventory loss and $2.5 billion in missed Q2 revenue. Chinese companies like Tencent, ByteDance, and Alibaba rapidly adopt H20 and RTX Pro chips for AI training and industrial applications, given their favorable price-performance balance. U.S. policymakers continue approving export licenses selectively, but without authorizing the sale of higher-tier chips like the H100 or GH200. This regulatory predictability stabilizes investor sentiment, sustaining NVIDIA’s market cap near the $4–4.2 trillion range. The H20’s technical limitations ensure the U.S. maintains its strategic tech edge, but also guarantees China’s dependency on future-generation American silicon. Strategic ambiguity remains, but manageable. This scenario balances commercial gains with policy containment.
Upside Case: Regulatory Expansion and Strategic Thaw (25% probability)
Here, political momentum from ongoing U.S.–China negotiations—particularly over rare-earth exports and trade normalization—leads the Trump administration to further loosen AI chip export rules by early 2026. The U.S. Commerce Department greenlights limited sales of upgraded, compliance-tuned versions of the H100 or new-generation AI chips, citing mutual economic interests and embedded safeguards. NVIDIA responds swiftly with additional SKUs tailored to China’s booming LLM and smart manufacturing sectors, unlocking $20–25 billion in annual sales. The RTX Pro line sees widespread deployment across Chinese robotics and logistics, and NVIDIA’s dominant CUDA software stack remains deeply embedded in local ecosystems. NVIDIA’s valuation jumps to $4.5 trillion or more, helped by broadened global chip demand and a lack of Chinese substitutes. This scenario also reduces strategic pressure on U.S.–China tech decoupling, potentially delaying domestic chip autonomy efforts in China. It marks a short-term diplomatic and commercial win, but may stir political backlash in Washington.
Downside Case: Policy Reversal and Strategic Retrenchment (15% probability)
In this adverse scenario, rising political tensions—perhaps due to Taiwan-related flare-ups, domestic U.S. pressure, or revelations of unauthorized chip use—lead to a reinstatement of stricter export bans by late 2025. The Commerce Department revokes key H20 licenses or imposes even tighter specs, halting shipments once again. NVIDIA suffers a repeat of the Q2 loss, with additional inventory write-downs exceeding $3–4 billion. Chinese firms accelerate efforts to adopt homegrown AI chips from Huawei, Cambricon, or Alibaba’s T-Head unit, even if performance lags persist. CUDA alternatives gain traction as local developers pivot, potentially creating a long-term strategic competitor ecosystem. NVIDIA’s China revenue collapses to under $5 billion, and investor confidence takes a hit, dropping the stock by 10–15% and reducing market cap by several hundred billion. This scenario underscores the fragility of tech diplomacy and accelerates global supply chain fragmentation, reinforcing long-term decoupling trends.
