It’s hard to keep Nvidia (NVDA), the world’s biggest company and the first one to command a $4 trillion market cap, out of the news cycle. Over the last few weeks, Nvidia has been in the news regarding its China business, and most recently, Reuters reported that the company is developing a new chip for China.
In this article, we’ll look at some of the recent developments related to Nvidia’s China business and examine the company’s outlook.
Why Nvidia’s chips have been the building blocks for artificial intelligence (AI) models, they have also added a new dimension to the U.S.-China rivalry. President Joe Biden’s administration imposed restrictions on Nvidia’s export of advanced AI chips to China, citing fears over their dual military use. President Donald Trump’s administration went a step further and blocked the exports of Nvidia’s H20 chips to China. Nvidia had specifically designed these chips for China to meet the guidelines set by the U.S. government, and after the ban, it booked a charge of $4.5 billion in the first quarter of its fiscal 2026.
China was once Nvidia’s second-largest market, but U.S. export control restrictions have taken a toll on its business there. During the fiscal Q1 2026 earnings call in May, CFO Collete Kress said, “Losing access to the China AI accelerator market, which we believe will grow to nearly $50 billion, would have a material adverse impact on our business going forward and benefit our foreign competitors in China and worldwide.” Nvidia CEO Jensen Huang has said multiple times that the export restrictions would only fuel chip innovation in China as rivals, particularly Huawei, catch up.
While the Trump administration has allowed Nvidia to resume H20 exports to China, the company will need to share 15% of its China revenues with the U.S. government.
The unusual agreement left markets perplexed, as the ostensible reason the U.S. banned exports of advanced AI chips to China was because of national security concerns, and a cut in revenues does not help address that. Many see legal challenges to the revenue share agreement, and separately, lawmakers across the political divide have been critical of the export resumption.
Reports suggest that Nvidia is developing a new AI chip for China. Tentatively named B30A, it is said to be based on the company’s Blackwell architecture and would be more powerful than the H20, which is currently its most advanced chip sold in China.
In its response to the reports of the new chip for China, Nvidia said, “We evaluate a variety of products for our roadmap, so that we can be prepared to compete to the extent that governments allow.” It emphasized, “Everything we offer is with the full approval of the applicable authorities and designed solely for beneficial commercial use.”
Meanwhile, the Chinese government hasn’t been too welcoming of the H20 chip these days and has cautioned domestic companies against using these over fears of a U.S. government “backdoor.” Nvidia has denied any such claims, but it remains to be seen whether Chinese companies defy the government warning to buy the H20.
Wall Street analysts are meanwhile not too perturbed by these concerns and have started raising Nvidia’s target price ahead of its upcoming earnings report. TD Cowen raised Nvidia’s target price to $235 and sees a “clean narrative” for the stock despite concerns over its China business.
Cantor Fitzgerald raised its target price from $200 to $240 as analyst C.J. Muse sees “seemingly insatiable” demand for AI compute. Mizuho raised its target price from $192 to $205, while Morgan Stanley raised its from $200 to $206. All three brokerages expect Nvidia to beat consensus estimates when it reports its fiscal Q2 2026 earnings next week.
While Nvidia’s China business is shrouded in uncertainty, the company’s non-China business is doing incredibly well. The June quarter earnings calls of other Big Tech companies, which include the so-called hyperscalers, showed that companies are not slowing down their AI capex, and if anything, they are doubling down amid early signs of monetization.
Sovereign AI is yet another growth driver for Nvidia, as, given the growing importance of AI, major countries want to have more control over the technology. Huang has been globe-trotting for a reason and has been pitching sovereign AI on his trips to the Middle East and the European Union this year.
Nvidia trades at a forward price-earnings (P/E) multiple of 45.2x, which does not look bloated in the context of the strong earnings growth that the company brings to the table.
Moreover, markets never fully priced in a normal business environment for Nvidia in China, and any sales in the country would be incremental to Nvidia’s top line and bottom line despite the 15% revenue share with the U.S. government.
Overall, while the noise over the China business might put pressure on Nvidia stock in the near term, I continue to stay invested in the company and will use any further weakness to add to my positions.
On the date of publication, Mohit Oberoi had a position in: NVDA. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com