Exclusive: Nvidia orders 300,000 H20 chips from TSMC due to robust China demand, sources say

Nvidia has placed orders for 300,000 H20 chipsets with TSMC, driven by robust Chinese demand and a strategic shift from relying solely on existing inventory. This move follows the Trump administration's reversal of an April ban, allowing sales of the H20, a chip specifically designed for the Chinese market due to export restrictions on more advanced AI models. While securing U.S. export licenses remains crucial and the decision faces bipartisan condemnation, Nvidia aims to maintain its market presence in China against competitors like Huawei.

Analysis

Nvidia has placed a new order for 300,000 H20 chipsets with TSMC, a strategic reversal driven by unexpectedly strong demand from its Chinese clients. This order supplements an existing inventory of 600,000 to 700,000 units and represents a significant portion of the roughly 1 million H20 chips sold in 2024, signaling a potential recovery of revenue after Nvidia warned of a $5.5 billion inventory write-off and $15 billion in forgone sales from the prior ban. The move is enabled by the Trump administration's recent policy shift allowing the resumption of H20 sales to China, a decision linked to broader trade negotiations over rare earth magnets. However, a critical uncertainty remains as Nvidia has not yet received the necessary export licenses from the U.S. Department of Commerce, despite reported assurances. This regulatory dependency, coupled with bipartisan condemnation of the policy in the U.S., introduces significant execution risk to Nvidia's strategy of defending its market and software ecosystem against competitors like Huawei in China.

Key Decisions for Investors

• Investors should weigh the positive demand signal for Nvidia against the material risk posed by the pending U.S. export licenses, which are not yet approved and could face political headwinds.
• Monitor any announcements from the U.S. Department of Commerce regarding H20 export licenses, as this will be the primary catalyst for realizing the revenue potential from these new orders.
• Consider the strategic necessity for Nvidia to maintain a foothold in China; this move mitigates the long-term risk of Chinese developers fully transitioning to domestic alternatives like Huawei, even if near-term revenue is subject to regulatory volatility.
• For TSMC investors, this specific order provides a modest, incremental positive, but its ultimate value is contingent on the stability of U.S.-China technology trade policy.