Nvidia: China Is Back

NVIDIA has secured an agreement with the Trump Administration to resume sales of its older H20 AI GPU chips to China, reversing a ban that previously resulted in a $4.5 billion charge and an estimated $10.5 billion in lost sales during 1H'26. This strategic reversal reopens a significant market for NVIDIA, with potential annual sales from China exceeding $30 billion, and is expected to substantially boost future revenue, potentially elevating FQ3 estimates from $52 billion to $60 billion. Despite the stock's recent doubling, the re-entry into the Chinese market, coupled with continued robust AI demand, is seen as a strong catalyst for further upside, reinforcing a bullish outlook for the company's financial performance.

Analysis

The U.S. government's agreement to permit NVIDIA to sell its older H20 AI GPU chips to China marks a significant reversal of a policy that had substantial financial repercussions. The company previously absorbed a $4.5 billion charge and forwent an estimated $10.5 billion in sales in the first half of fiscal 2026 due to the export ban. The reinstatement of these sales channels reopens a critical market, with potential annual revenue from China projected to be at least $30 billion. While current FQ2 guidance of $45 billion does not reflect this development, the news sets the stage for a material upside surprise in FQ3. Analyst consensus for FQ3 stands at $52 billion, but the combination of a potential $18.5 billion backlog and a normalized quarterly run-rate could push revenue towards $60 billion. Despite the stock's near-100% appreciation since its April lows to a $4.2 trillion market capitalization, the valuation remains a key point of discussion. The stock currently trades at 30x FY27 EPS targets, but this multiple contracts to 23x a revised FY28 EPS target of $7.50, which incorporates a $50 billion total addressable market in China. This outlook is further supported by Citi's upgraded forecast for 2028 AI data center compute spending to $563 billion. However, risks persist, including potential production bottlenecks in resuming H20 chip supply, the emergence of competitive chip technologies, and the possibility that AI demand may not meet elevated expectations.

Key Decisions for Investors

• Investors should anticipate a significant upward revision to FQ3 revenue estimates, as current consensus of $52 billion does not yet factor in the resumption of sales to China, which could add a substantial backlog and ongoing revenue stream.
• Despite the stock's recent doubling, the valuation may still be considered compelling on a forward basis; consider the FY28 P/E multiple of 23x, which incorporates the restored China business, as a key metric for long-term positioning.
• It is prudent to monitor for execution risks, specifically NVIDIA's ability to ramp up H20 production to meet renewed Chinese demand without significant bottlenecks, as this will be critical for realizing the projected revenue upside.
• While the resolution of the export ban de-risks the near-term outlook, investors should remain attentive to long-term threats, including competitive pressures and any deceleration in the broader AI hardware spending cycle.