Nvidia Suspends China-Focused H20 Chip As Beijing Pushes For Domestic Alternatives, Analysts Warn Of Weaker Q3 Outlook: Report
Nvidia has suspended production of its H20 AI chip for China due to Beijing's push for domestic alternatives, raising concerns about the company's Q3 outlook. Analysts warn that excluding China-related revenue could reduce sales by $2-3 billion. The suspension follows regulatory pressure from Chinese officials urging local firms to adopt domestic processors. Nvidia's shares fell slightly amid these developments, with the company emphasizing that the H20 chip is not military-related and has no backdoors.
Nvidia Corporation NVDA has reportedly ordered suppliers to halt work on its H20 artificial intelligence chip for China, as regulators in Beijing push local firms toward domestic alternatives and Wall Street analysts caution that ongoing uncertainty could weigh on the company's next quarter outlook.
Nvidia Pulls Back On H20 Production
Nvidia told suppliers, including Arizona-based Amkor Technology AMKR and South Korea's Samsung Electronics Co. SSNLF, to suspend work on the H20 chip, reported Reuters (via The Information).
Amkor provides advanced packaging for the chip, while Samsung supplies high-bandwidth memory.
Nvidia declined to address the specific report but told Benzinga in an emailed statement, "We constantly manage our supply chain to address market conditions."
The company also reiterated that the H20 is not a military product and added, "NVIDIA does not have ‘backdoors’ in our chips that would give anyone a remote way to access or control them. The market can use the H20 with confidence.”
Beijing Pressures Companies To Shift To Local Chips
The suspension comes after Chinese regulators, including the Cyberspace Administration of China, reportedly summoned internet firms such as Tencent Holdings TCEHY and ByteDance over their H20 chip purchases.
Officials expressed concerns about information risks and have been urging companies to adopt domestic processors from Huawei Technologies and Cambricon.
Some firms have started using Huawei's Ascend chips for inference tasks, though many still depend on Nvidia for training more complex AI models. Reports suggest startups like DeepSeek have struggled with delays when relying solely on local alternatives.
US Remarks Spark Diplomatic Fallout
The regulatory push intensified after U.S. Commerce Secretary Howard Lutnick told CNBC, "We don't sell them our best stuff, not our second-best stuff, not even our third-best … the thinking is to sell the Chinese enough that their developers get addicted to the American technology stack."
Chinese officials reportedly considered the remarks "insulting" and moved quickly to curb Nvidia's sales.
Analysts See Risk To Q3 Outlook
KeyBanc Capital Markets warned that Nvidia may guide below Wall Street expectations for the third quarter, citing uncertainties in China.
The brokerage estimated that excluding China-related revenue could reduce sales by $2 billion to $3 billion. Still, analysts pointed to strong demand elsewhere, noting GPU supply grew 40% in the second quarter and is projected to rise another 20% in the third with the rollout of Nvidia's Blackwell B200 chips.
China represented about 13% of Nvidia's fiscal 2024 revenue, making it a critical but increasingly volatile market.
Price Movement: Nvidia shares fell 0.24% in Thursday's regular session and slipped an additional 0.10% in after-hours trading, finishing at $174.80, according to Benzinga Pro.
Benzinga's Edge Stock Rankings indicate that NVDA maintains a robust upward price trend across short, medium and long-term timeframes. Further performance details are available here.
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