NVIDIA H20 Graphics Cards Production Issues Pose New Risk to China Revenue

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The Implications of US Sanctions on NVIDIA’s H20 AI GPUs in China

Recent US sanctions aimed at limiting sales of NVIDIA’s H20 AI GPUs appear to be exerting more pressure than previously anticipated. A Chinese server company, H3C, has alerted its customers to an impending shortage of these high-end GPUs, highlighting the challenges posed by existing trade restrictions. The H20 GPUs gained significant attention earlier this year, particularly when China’s DeepSeek outperformed its American counterparts through the utilization of these advanced chips.

H3C’s Inventory Concerns and Broader Market Implications

In an announcement reported by the Financial Times, H3C conceded that it is grappling with depleted inventories of H20 GPUs, the only NVIDIA chips legally available for sale in China under current sanctions. The company has indicated it will prioritize fulfillment of orders from its larger clients, underscoring the strains on supply amid heightened demand. NVIDIA’s stock has reacted negatively, experiencing a 4.3% decline this week and a staggering 19% drop year-to-date, as the market remains apprehensive following January’s dramatic selloff triggered by DeepSeek’s performance.

NVIDIA H20 AI Server — Image Source: NVIDIA

Production Challenges and Financial Risks for NVIDIA

H3C cautioned that the H20 GPU shortages may persist beyond April 20th due to ongoing production constraints, particularly as issues have mainly affected NVIDIA’s newest AI GPU lineup, Blackwell. The potential impact of these shortages is significant, with estimates suggesting that up to 10% of NVIDIA’s GPU sales may be tied to the Chinese market, further unnerving investors worried about declining revenue.

Future of Chinese GPU Development Amid Political Tensions

Amid ongoing geopolitical tensions, there are reports that the current US administration may be looking to extend restrictions on H20 GPU sales to China. To mitigate reliance on NVIDIA, local companies like DeepSeek are exploring alternatives to NVIDIA’s programming environment, CUDA. Huawei has developed its own programming language, CANN, although early reports indicate it falls short of the performance standards set by NVIDIA’s solutions.

Market Reactions and Speculations

The H20 GPUs’ scarcity was also mentioned in an earlier report from Chinese forum MyDrivers, which stated that companies such as Tencent are making substantial purchases in anticipation of tighter regulations—tens of billions of Yuan worth of equipment. It remains unclear whether these actions are primarily driven by a need for computing power or if they reflect a strategic move to stockpile inventory ahead of new sanctions.

As for NVIDIA, it is uncertain whether the company has deliberately slowed H20 production to manage excess inventory while awaiting further clarity on regulatory frameworks. The firm has approached the current administration to reconsider previous sales limitations that restrict distribution to just 18 countries.

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