Nvidia's (NVDA 0.56%) business has been going strong over the past few years, thanks to its artificial intelligence (AI) chip leadership, but the company has faced one major problem in recent times: exclusion from a major market. The U.S. earlier this year halted sales of U.S. chips to China, a country that represented 13% of Nvidia's sales in the latest fiscal year.
Though Nvidia, even without sales to China, has maintained double-digit quarterly growth and has delivered record revenue, the situation still has been a significant headwind. It's denied the company access to additional revenue and a key market. China is second after the U.S. in rankings of countries leading in AI, making it a player that AI companies wouldn't want to ignore.
Yesterday, though, President Donald Trump delivered what may be game-changing news. The president announced he would allow the export of Nvidia's H200 chips to China. If you're a Nvidia shareholder or if you're considering a position in the stock, here's what you need to know.
Image source: Getty Images.
U.S. export controls
Before diving in, however, let's take a quick look at the recent chip export situation. The U.S. originally launched export controls in 2022 against China and certain other countries deemed security risks. Nvidia responded by designing a less-powerful chip, the H20, to meet guidelines and continued to generate sales in China.
But, earlier this year, the government informed Nvidia -- and other U.S. chip companies -- that it would halt these exports and require specific licenses for potential exports. As a result, in the fiscal first quarter, Nvidia took a billion-dollar charge for inventory it was unable to sell to China, and soon afterward told investors it no longer would include China in its guidance.
In August, chip designers, including Nvidia, agreed to share 15% of their Chinese sales with the U.S. if they could return to the market. But another stumbling block arose -- China discouraged its companies from using Nvidia's H20 and encouraged them to use chips from local players. All of this has left Nvidia -- and other U.S. chip designers -- on the sidelines of this market in 2025.
NASDAQ: NVDA
Key Data Points
Trump's Truth Social post
Now, let's consider this recent news from Trump. The president, in a post on Truth Social, said Nvidia could sell another chip, the H200, "to approved customers" in China as long as the company shares 25% of its revenue from those sales with the U.S.
"We applaud President Trump's decision to allow America's chip industry to compete to support high-paying jobs and manufacturing in America," Nvidia said in a statement. This suggests Nvidia is on board -- and Trump, in his post, said China's President Xi Jinping "responded positively" to the proposal. So, it looks as if each party is interested in moving forward.
The deal involves H200 graphics processing units (GPUs) -- these are existing products, so rollout should be faster than if the deal involved the creation of a new GPU. The H200 also is a more powerful chip than the H20, so customers in China may be eager to get in on this product. (The U.S. isn't allowing the export of the Blackwell system, Nvidia's latest architecture, released about a year ago.)
We don't know the exact time frame for Nvidia's return to China, so any news on that will be a point to watch in the coming weeks.
Nvidia's profitability
Though Nvidia must share some of its sales from China with the U.S., it's important to remember that the company still has what it takes to generate a significant profit there. We know that because Nvidia's generally maintained a gross margin of more than 70% in recent quarters, showing it's highly profitable on sales. So, the terms of this deal still offer Nvidia a solid growth opportunity.
This could even be a game changer for the tech giant: Nvidia chief Jensen Huang recently said the Chinese AI market may represent $50 billion this year, according to CNBC, and "a couple of 100 billion dollars by the end of the decade."
As mentioned, Nvidia already has generated impressive revenue gains, and even without China, its long-term prospects are bright. But with the addition of this key market, the picture looks even better, and that's fantastic news for Nvidia shareholders today and down the road.
