Exclusive: Chinese firms still want Nvidia chips despite government pressure not to buy, sources say

Chinese tech giants, including Alibaba and ByteDance, continue to prioritize Nvidia's AI chips like the H20 and the more powerful, upcoming B30A, despite Beijing's discouragement and regulatory scrutiny. This persistent demand is driven by the chips' superior performance over domestic alternatives and constrained local supply, even though these Nvidia models are downgraded to comply with U.S. export restrictions. The situation underscores the ongoing U.S.-Sino tech rivalry, highlighting Nvidia's efforts to retain its significant China revenue amid market uncertainty that recently impacted its sales forecast.

Analysis

Despite explicit discouragement from Beijing, major Chinese technology firms, including Alibaba and ByteDance, continue to exhibit strong demand for Nvidia's AI chips. This demand is centered on the currently available H20 model, priced at $10,000-$12,000, and the anticipated B30A chip, a more powerful model expected to be up to six times faster. The persistence is attributed to the superior performance of Nvidia's products over domestic alternatives from firms like Huawei, which are facing supply constraints. This dynamic highlights a critical tension in the U.S.-Sino tech rivalry: while China aims for technological self-sufficiency, its leading companies still rely on U.S. technology for cutting-edge performance. For Nvidia, this situation is complex; China represented 13% of its revenue last year, but uncertainty led the company to exclude China from its recent quarterly sales forecast, contributing to a 6% stock decline. The U.S. government's softened stance, allowing sales of these downgraded chips in exchange for a 15% share of H20 revenue, aims to keep Chinese developers within Nvidia's ecosystem, a strategic move to counter rivals. Consequently, Nvidia's ability to capitalize on this demand, estimated by its CEO to be a potential $50 billion market, remains entirely subject to the fluid geopolitical and regulatory landscape.

Key Decisions for Investors

• Investors in Nvidia should recognize the high-risk, high-reward scenario in China, where strong underlying demand is directly offset by significant geopolitical and regulatory uncertainty from both Washington and Beijing.
• The willingness of Chinese firms to pursue Nvidia's chips despite government pressure serves as a strong validation of Nvidia's technological lead over domestic Chinese competitors, reinforcing its competitive moat in the high-performance AI sector.
• Monitor the U.S. approval status and subsequent Chinese order volumes for the forthcoming B30A chip, as its market reception will be a key indicator of Nvidia's ability to navigate export controls and unlock a significant, but currently un-forecasted, revenue stream.
• For investors tracking Chinese tech giants like Alibaba, their pragmatic pursuit of superior U.S. chips is a positive signal for their ability to maintain competitiveness in the global AI race, even if it creates friction with domestic policy.