Semiconductor giant Nvidia (NVDA) has asked some of its suppliers to halt the production of its H20 artificial intelligence (AI) chips that are custom-made for China. The Information reported that Nvidia has urged Amkor Technology (AMKR) and Samsung Electronics (SSNLF) to pause production of its H20 chips amid China’s crackdown due to security concerns. Meanwhile, Reuters in a separate report stated that Nvidia has asked Foxconn (HNHPF) to suspend H20-related production. NVDA stock was down about 1% in Friday’s pre-market trading.
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Both Nvidia and Advanced Micro Devices (AMD) had recently secured export licenses from the Trump administration to resume the supply of lower-end AI chips to China on the condition that they give 15% of the revenue from the sales of these chips to the government.
Nvidia Suspends H20 Chip Production
Nvidia has reportedly asked Arizona-based Amkor Technology, which handles the advanced packaging of the H20 chips, and South Korea’s Samsung Electronics, which supplies memory for these AI processors, to pause production. Citing sources, Reuters reported that Foxconn (Hon Hai Precision) has been asked to suspend work related to the H20 chips. Responding to the news, an Nvidia spokesperson said, “We constantly manage our supply chain to address market conditions.”
Nvidia’s decision to halt the production of H20 chips follows the Chinese government’s advice to domestic tech companies, including ByteDance, Alibaba (BABA), and Tencent (TCEHY), to stop buying these chips due to alleged security concerns.
Notably, last month, the Cyberspace Administration of China (CAS) had summoned Nvidia over national security concerns related to the H20s, including allegations of having certain tracking technology or “backdoors,” which allow them to be operated remotely. Nvidia CEO Jensen Huang denied these allegations, stating that the H20 chips are not a “national security concern” for the Chinese market.
Furthermore, there have also been reports that China’s move to restrict sales of Nvidia’s H20 AI chips was triggered by “insulting” remarks from U.S. Commerce Secretary Howard Lutnick. Additionally, in recent years, Chinese regulators have encouraged tech companies to ramp up the use of domestic chips.
The potential loss of H20 chip sales to China or Beijing’s crackdown on Nvidia’s other chips could adversely impact the company’s sales, given that it is a key growth market.
Is Nvidia Stock a Buy, Sell, or Hold?
Despite the ongoing uncertainties related to H20 chip sales to China, Wall Street remains bullish on Nvidia stock based on robust demand for its AI graphics processing units (GPUs). Ahead of the Q2 earnings on August 27, Nvidia stock scores a Strong Buy consensus rating based on 35 Buys, three Holds, and one Sell recommendation. Wall Street expects NVDA to report a 48% year-over-year growth in Q2 EPS to $1.01 and about a 53% jump in revenue to $45.9 billion.
The average NVDA stock price target of $197.89 indicates 13.1% upside potential from current levels.
