China asks tech companies to buy less of Nvidia chips

Nvidia Corp (NASDAQ: NVDA) is in focus today following a report that China has asked its tech companies to prefer local AI chips. 

Why does it matter for Nvidia stock?

The news is significant for the semiconductor behemoth as its H20, L20, and L2 chips are tailor made for China. 

Peers that may also take a beating as Beijing pushes further to phase out foreign-made AI chips include Advanced Micro Devices and Intel. 

The news arrives only days before $NVDA is scheduled to report its financial results for the first quarter. Consensus is for it to earn $5.14 a share – up significantly from 88 cents per share only a year ago. 

Shares of Nvidia Corp are up more than 80% versus the start of this year at writing. 

Watch here: https://www.youtube.com/embed/3muL8l5AgQY?feature=oembed

Which Chinese firms have been directed?

Notable names that have received verbal guidance from the government include ByteDance, Alibaba, Tencent, and Baidu, as per sources that talked to The Information on Monday. 

Nvidia has received orders for at least 350,000 of its H20 chips from Chinese firms for 2024. Total valuation of these orders is estimated at $4.0 billion – which still is a decline from $5.0 billion worth of orders from Chinese companies in 2023. 

$NVDA attributed about 14% of its total data centre sales to China in its fiscal 2024 versus a much higher 19% in fiscal 2023 due to the U.S. export control. 

US-China Diplomatic and Trade Tiffs Play Out in Tech

The ongoing distrust between the United States and China has degenerated into export controls, threats of sanctions, and outright demands for dissociation – causing ripples in the tech industry.

Recently, the U.S revoked… pic.twitter.com/BUY0mmq7CH

— Kenyan Wall Street (@kenyanwalstreet) May 13, 2024

Wall Street currently has a consensus “buy” rating on Nvidia stock. 

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