Beijing is pressuring major Chinese tech companies, including Alibaba Group (NYSE:BABA) and ByteDance, to justify their purchases of Nvidia's (NASDAQ:NVDA) H20 artificial intelligence chips instead of opting for domestic alternatives.
This adds friction to Nvidia's China business after reaching an export revenue-sharing arrangement with the Trump administration.
Regulators, including the Ministry of Industry and Information Technology (MIIT), have questioned why these firms need the H20 chips, prompting some, previously among the largest buyers before sales were restricted, to consider reducing orders, the Financial Times reported on Tuesday.
Chinese authorities have discouraged using H20 chips, especially in government or security-related projects, while promoting domestic options from companies such as Huawei and Cambricon.
The push comes amid Beijing's stated security concerns over Nvidia's products and as U.S.-China tensions intensify around AI technology.
Nvidia recently agreed to give the U.S. government 15% of its China chip revenues to resume H20 sales, but its market share in China is projected to fall to 55% this year from 66% in 2024, according to Bernstein.
Nvidia reported a $4.5 billion charge in the first quarter from excess H20 inventory and purchase obligations. Before the latest export licensing requirements, it generated $4.6 billion in H20 product sales for the quarter.
Prior reports indicated Chinese companies, including ByteDance, Alibaba, and Tencent, stockpiled Nvidia's H20 AI chips ahead of new U.S. semiconductor sanctions, aiming to secure one million units. They reportedly placed over $16 billion in orders for the quarter, while Nvidia has booked $18 billion in H20 orders since 2025.
In fiscal 2024, China contributed $17 billion in revenue, representing 13% of Nvidia's total sales.
Bank of America Securities analyst Vivek Arya expects Nvidia to gain $6–$10 billion in incremental China sales between August and January if U.S. regulators approve additional H20 GPU shipments.
He based the estimate on Nvidia's reported order of 300,000 more H20 units from Taiwan Semiconductor Manufacturing Co (NYSE:TSM), adding to its existing 600,000–700,000 unit orders, with each chip carrying an average selling price of about $10,000.
Arya noted that $3–$4 billion of this potential revenue could shift to early next year due to a nine-month supply chain ramp.
Price Actions: At last check Tuesday, NVDA stock is trading higher by 0.93% to $183.75. BABA stock is up 0.02% at 118.66.
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