Demand in doubt! It is reported that NVIDIA has halted the production of the AI chip H20 for China
NVIDIA has requested Samsung Electronics and Amkor Technology to suspend the production of the H20 artificial intelligence chip designed specifically for the Chinese market, raising market concerns about the demand for this chip. The Chinese government has urged companies to avoid using this chip, leading to a decline of approximately 1.9% in NVIDIA's stock price. Meanwhile, Chinese customers are turning to domestic chips, reflecting China's strategy to reduce dependence on American technology
According to The Information, NVIDIA (NVDA.US) has requested component suppliers such as Samsung Electronics (SSNLF.US) and Amkor Technology (AMKR.US) to suspend the production of H20 artificial intelligence (AI) chips specifically designed for the Chinese market.
The media cited unnamed sources stating that before NVIDIA issued this directive this week, the Chinese government had urged domestic companies to avoid using this chip. Kok Hoong Wong, head of equity sales trading at Malayan Banking Berhad, noted that NVIDIA's stock price fell about 1.9% at one point during the Asian morning session on the Blue Ocean alternative trading system.
If the production suspension is confirmed, it will raise questions about the fundamental demand for the H20 chip. This product, which performs below NVIDIA's cutting-edge AI accelerators, was supposed to compete with domestic chips from companies like Huawei and Cambricon (688256.SH). During Friday's trading, Cambricon's stock price surged over 14% at one point, and other Chinese chip stocks also rose collectively.
Although NVIDIA and AMD (AMD.US) were recently allowed to resume sales of low-end AI chips to China, the U.S. government attached highly controversial and potentially illegal conditions—requiring both companies to remit 15% of the related revenue to the U.S. government. Meanwhile, Chinese customers are turning to domestic chips, which is part of China's overall strategy to build a world-class semiconductor industry and reduce reliance on U.S. technology.
According to a recent report by Bloomberg, relevant Chinese authorities have notified several companies not to encourage the use of lower-performing imported chips. Earlier, U.S. government officials indicated they were considering adding more precise tracking features to chips, raising concerns about potential security risks associated with the H20.
NVIDIA CEO Jensen Huang reiterated on Friday during discussions with TSMC (TSM.US) in Taiwan that the H20 does not have backdoors or tracking features. He revealed that he is discussing the possibility of developing follow-up products for the H20 for the Chinese market with the U.S. government, but the final decision rests with the Trump administration.
"Launching a new generation of AI data center products—follow-up products for H20—into the Chinese market is not something we can decide. Of course, it depends on the U.S. government," Huang stated at an impromptu press conference at the airport. "We are communicating with the government, but it is too early to draw conclusions now."
In response to The Information's report, an NVIDIA spokesperson stated, "We continuously manage our supply chain based on market conditions." The company, which will announce its financial results next week, has repeatedly denied that its products have backdoors or tracking features. "As both governments are aware, the H20 is not a military or government infrastructure product. China will not rely on U.S. chips for government operations, just as the U.S. government will not rely on Chinese chips. However, allowing U.S. chips to be used for beneficial commercial purposes is advantageous for all parties."
It is currently unclear whether the report refers to a production interruption of the new H20 chip or an accumulation of unfinished AI accelerator inventory. The Information stated that Amkor Technology, which provides chip packaging services for clients like NVIDIA, currently has a large backlog of semi-finished chips. Amkor Technology representatives did not immediately respond to requests for comment outside of working hours, and Samsung Electronics representatives declined to comment It is worth mentioning that NVIDIA previously recorded a $5.5 billion impairment loss after the Trump administration decided to ban the sale of H20, and it still holds unsold inventory. Jensen Huang previously stated that the U.S. government's easing of the ban this summer could help NVIDIA recover some of the impairment losses, but it cannot fully compensate
