Nvidia, the frontrunner in artificial intelligence chips, is set to announce another robust revenue forecast, riding on the success of its AI-powered technologies on Tuesday. However, all eyes are on the potential impact of the expanding U.S. restrictions on the sale of its high-end chips to China, which has become a major concern for investors.
According to Reuters, the company, which has seen a meteoric rise in its stock value, is facing scrutiny amid worries that the recent bans on specific chip sales to China could disrupt its market presence in the country, which accounts for over one-fifth of its revenue.
“There is an underlying assumption that Nvidia has total market dominance … so anything that affects that perception … is going to temper enthusiasm,” Reuters cited Kyle Rodda, an analyst at Capital.com.
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The Biden administration’s recent ban on the sale of H800 and A800 chips to China, Nvidia’s third-largest market, has stirred concerns about the company’s outlook. Nvidia downplayed the immediate effects of the restrictions but saw a dip in its stock value following reports that up to $5 billion in Chinese orders might be at risk.
Navigating China’s Chip Challenges: Nvidia’s strategies unveiled
Before the latest export curbs, Nvidia’s H800 chip was a standout performer in the Chinese market, outpacing competitors due to its superior performance. In response to the restrictions, Nvidia has developed three new chips tailored for the Chinese market.
Analysts suggest that while these chips may experience a reduction in overall performance due to controls imposed by the U.S., they could still find traction among Chinese customers while remaining acceptable to U.S. regulators.
Stacy Rasgon, an analyst at Bernstein, told Reuters about the challenge Nvidia faces, stating, “While the prior workarounds required only small changes to the memory bandwidth of the parts, this time around, the nature of the controls forces a sharp reduction in overall performance.” Despite these hurdles, Rasgon believes that the chips may still be attractive to the Chinese market, potentially mitigating the impact of the export curbs.
AI giant’s growth trajectory continues amidst headwinds from China
Nvidia is expected to reveal a staggering 173 per cent surge in revenue for the third quarter, according to analysts polled by LSEG. Wall Street projections anticipate a further 195 per cent increase in revenue for the current quarter. Despite concerns about the impact of Chinese restrictions, Nvidia’s stock trades at 31 times its 12-month forward earnings estimates, still below the price-to-earnings ratio of rival AMD.
The company’s commitment to innovation is evident in the introduction of the H200, a top-of-the-line chip for AI applications. With higher bandwidth memory, the H200 aims to maintain Nvidia’s competitive edge over AMD, which is gearing up to release its MI300 chip.
Major cloud service providers, including Amazon Web Services, Google Cloud, Microsoft Azure, and Oracle Cloud Infrastructure, will offer access to H200 chips. Additionally, specialty AI cloud providers CoreWeave, Lambda, and Vultr are set to join the ranks, marking another strategic move by Nvidia.
However, Morningstar analysts suggest, Nvidia’s growth may eventually reduce the material importance of revenue from China.
(With inputs from Reuters)
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