If asked about the biggest risks to the company, many NVDA stock investors would probably start talking about the U.S.-China trade war, and how it forbids Nvidia from selling its chips to companies operating in China. This is extremely important for Nvidia, as the Chinese market used to account for as much as a quarter of Nvidia’s total data center revenue, and the company made $10 billion from China in the last fiscal year.
Therefore, it’s no surprise that Nvidia doesn’t want to lose the Chinese market, and has tried to come up with less powerful chips that would get around the trade restrictions. And according to a new report, Nvidia is set to make a staggering $12 billion from China this year, despite the sanctions. Here’s how this might affect NVDA stock.
Nvidia’s H20 Success
According to a new report by Financial Times, Nvidia is set to deliver more than 1 million of its new H20 chips over the coming months to China, and these chips are designed to fall outside of U.S. restrictions on selling AI processors to Chinese companies. Analysts from research firm SemiAnalysis noted that this figure is almost twice as many as Huawei is expected to sell of its China-made rival product, Ascend 910B.
The U.S. is forbidding American chipmakers from selling their most powerful chips to China, fearing that Beijing may use them to create more powerful AI systems with military applications. This affected Nvidia’s sales in the country greatly. In fact, in the company’s last earnings call, CFO Collette Kress revealed that Nvidia’s China sales are down to a mid-single digit percentage, which is an extremely significant drop, considering the fact that China once accounted for 25% of Nvidia’s data center sales. Therefore, the fact that Nvidia is still set to earn a lot of money from the country is very bullish for the company, and will definitely have a positive impact on NVDA stock.
Morgan Stanley & SemiAnalysis on NVDA Stock
According to the SemiAnalysis analysts, each H20 chip costs between $12,000 and $13,000, suggesting that Nvidia is likely to generate upwards of $12 billion in sales. This would be more than the $10 billion the company made from its entire China business in the last fiscal year, which includes selling graphics chips to PC gamers and other products.
It’s important to note that analysts at both Morgan Stanley (NYSE: MS) and SemiAnalysis say that the H20 chip is now being shipped in volume and is proving popular with Chinese customers, despite its downgraded performance compared with the chips Nvidia can sell in the U.S.. Additionally, SemiAnalysis’ Dylan Patel said that while, on paper, the H20’s capabilities are below that of Huawei’s 910B, in practice, Nvidia’s chip is actually better, thanks to superior memory performance.
He also estimated that Huawei would sell about 550,000 chips over the same period, as the company and its manufacturing partners are still struggling to produce the complex chips in high enough volumes to meet demand. Keep in mind that most Chinese AI companies have built their AI models on top of Nvidia’s ecosystem and software, meaning that switching to Huawei’s infrastructure would be time-consuming and costly.
Therefore, we can say that Nvidia is set to make a massive recovery in the Chinese market, which would definitely reflect positively on NVDA stock. Combined with the upcoming release of its most powerful platform ever, Blackwell, Nvidia is set to dominate the second half of 2024, even if the company’s stock struggles in the short-term.
NVDA Stock Forecast
A while ago, many investors would’ve said that NVDA stock is a stock to buy and hold forever, and some even recommended buying it for retirement portfolios. Now, the stock is pulling back, leaving many to wonder if the company was in a bubble and now it’s bursting. But there’s more than one reason why NVDA stock still has more room to run.
According to some estimates, the global data center market could reach $418 billion by 2030, growing at a compound annual growth rate of 9.6% from 2023 to 2030. This is Nvidia’s main segment, in which it reports the sales of its flagship AI GPUs, and since Nvidia owns 80% of the AI GPU market, it’s in a very good position to capitalize on this growth. Moreover, demand for generative AI continues to increase, and many analysts think that this will be a $1 trillion industry by 2030.
And Nvidia has already benefited from this, and will likely continue to do so. In fact, the company saw its data center revenue soaring by 427% year over year to $22.6 billion in the most recent quarter. Investors should also keep in mind that tech companies are buying as many GPUs as they can get their hands on because they want to train their AI models. For instance, Facebook-parent Meta (NASDAQ: META) plans to have 350,000 of Nvidia’s H100 chips in its computer infrastructure by the end of the year.
Additionally, Nvidia has a long history of delivering above-average growth and returns to shareholders, but its current growth is off the charts, with revenue jumping 262% year over year in the most recent quarter. We can’t say for sure that the company will continue to see its revenue triple every year, but what’s for certain is that if investors patiently hold the stock over the next several years, they might see satisfactory returns.
This is because Nvidia will continue to innovate with new products and AI solutions to drive long-term growth, and this is shown with its new Blackwell platform. In fact, the company expects demand for Blackwell and the new H200 data center GPU to outstrip supply in the near term. Not only that, but the company expects its fiscal second-quarter revenue to be approximately $28 billion, representing a 107% increase year over year. Therefore, this level of demand makes the stock a great investment.
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