Nvidia (NVDA 1.28%) has been witnessing incredible demand for its artificial intelligence (AI) chips in recent years, which has led to remarkable growth in the company's revenue and earnings. However, the company's impressive growth could have been even better this year had it been able to sell its chips into the Chinese market.
The U.S. government restricted Nvidia from selling its chips to the Chinese market in April this year, telling the company that it needed a license to export its H20 data center graphics processing units (GPU) to that market. The chip giant incurred a significant financial setback as a result of this move. However, it appears that the Trump administration has removed that hurdle for Nvidia.
Image source: Nvidia.
Nvidia to export to China, but there's a condition
On Dec. 8, President Donald Trump posted on the social media platform Truth Social that he has "informed President Xi, of China, that the United States will allow NVIDIA to ship its H200 products to approved customers in China, and other Countries, under conditions that allow for continued strong National Security."
NASDAQ: NVDA
Key Data Points
Trump added that the Department of Commerce is finalizing the details of this arrangement. Additionally, he pointed out that "25% will be paid to the United States of America," suggesting that the government will get a cut of the revenue that Nvidia receives from selling its chips to China.
The critical thing to note here is that the administration is set to allow sales of Nvidia's H200 chips to China. The company was previously selling H20 chips into that market, which were designed especially for China in 2022 to overcome the restrictions imposed by the previous Biden administration. However, new restrictions from the Commerce Department earlier this year meant that Nvidia was unable to export even the H20 GPUs to Chinese customers.
Nvidia will now be able to sell its highly popular and more powerful H200 chips to Chinese customers. Based on the Hopper platform, the H200 hit the market in the second quarter of 2024. The H200 is a full-fledged AI chip system as compared to the pared-down H20, offering significantly more computing power, memory, and bandwidth. Moreover, the H200 costs nearly three times the H20.
So, the Trump administration's move could unlock a solid growth opportunity for Nvidia in 2026, considering how much money it was making from sales of its inferior H20 chips.
Here's why this move could be a big deal for the company
When Nvidia released its fiscal 2026 first-quarter results (for the three months ended April 27) in May this year, it revealed a $4.5 billion charge due to the H20 export restrictions. The company had sold $4.6 billion worth of H20 chips during that quarter before the restrictions kicked in. It lost $2.5 billion in sales that quarter after the restrictions were announced.
So, Nvidia would have generated $7.1 billion in revenue from China in fiscal Q1. For some perspective, the company's overall revenue for that quarter was $44.1 billion. Nvidia, therefore, was doing well in China and was close to achieving a $30 billion annual revenue run rate from that market.
Of course, Nvidia has managed to grow impressively despite being cut off from the Chinese market, but its performance could have been even better. Now that the company is likely to regain access to that market with an even more powerful chip, it could clock faster growth than what analysts are anticipating in 2026.
Consensus estimates are projecting a 48% increase in Nvidia's revenue in fiscal 2027 (which begins next month) to $316 billion. The good part is that Nvidia already has a solid enough backlog and order inflow to hit that mark. And now, the incremental revenue that Nvidia may be able to generate from the Chinese market could help it coast past that estimate.
It is worth noting that the demand for Nvidia's AI chips in China remains robust, according to Tom's Hardware. That's primarily because of the company's CUDA software stack, which allows developers to unlock the potential of the company's GPUs to accelerate workloads and build complex applications.
The H200 processors are more powerful than the H20, and they cost significantly more. So, it won't be surprising to see Nvidia reclaim its lost position in that market despite the 25% cut that the U.S. government will take from the company.
Assuming Nvidia can achieve $30 billion in revenue from the Chinese market next year, in line with the annual run rate it was clocking before the restrictions, its top line could approach $350 billion. That's higher than what analysts are expecting next year. The bigger top-line jump should also translate into a stronger earnings increase than the 59% jump that Wall Street expects Nvidia to deliver next year.
In all, the Trump administration's move makes the bull case for Nvidia even stronger, especially considering that it is trading at an attractive 30 times forward earnings right now, a discount to the Nasdaq-100 index's average earnings multiple of 34.
