Nvidia's investment logic has changed

A department official stated that previous export controls prohibited Nvidia from exporting H100 chips to China, but Chinese companies and Nvidia created two low-end versions, H800 or A800, to circumvent the controls. Therefore, the new regulations will close this loophole and also prohibit the export of these two chips.

However, Nvidia's response seems to have been anticipated, with a spokesperson stating that the company will comply with all relevant laws and regulations while providing its products to various industries. Given the worldwide demand for the company's products, we believe that this matter will not have a significant impact on the company's performance in the short term. The new regulations will also close the loophole of transshipment trade to prevent Chinese companies from buying AI chips through third parties.

A800 and H800 are designed for the Chinese market, and there have been a large number of orders recently, indicating that the Chinese side has anticipated that the Department of Commerce may do so and is trying to stockpile goods as much as possible, pre-empting future demand. This is also why the new regulations will not significantly impact Nvidia's short-term performance. Of course, in the long run, there will still be an impact.

The new ban undoubtedly negatively impacts Nvidia, given the robust demand for AI chips from Chinese customers (accounting for 15–20% of AI chip (CoWoS) shipments in 2024).

The Minister of Commerce stated that they did not want to tighten too much. This is not to restrict China's growth, but to prevent US core interests from being damaged. The new regulations will have 30 days of public feedback time before taking effect.

In the short term, the demand for AI chips in the US itself is sufficient to support Nvidia's performance, so the impact is indeed minimal. However, from a medium-to-long-term perspective, Nvidia's investment logic has changed somewhat. Artificial intelligence is definitely a trend of future development, and as long as China and the United States continue to compete, chip leaders like Nvidia will be affected, which means that the company's policy risk is significantly increasing. Nvidia's next-generation AI chips are also highly likely to be subject to controls and lose the Chinese market. At the same time, we cannot rule out the possibility that if US-China competition continues to deteriorate, export controls may continue to expand. Of course, the market for artificial intelligence is huge, and even if it loses China, I believe it can still provide Nvidia with a broad space for growth, but the upper limit has indeed been discounted as a result.