Nvidia secures order for 300,000 H20 chips amidst escalating demand in China

In the realm of artificial intelligence (AI), Nvidia's H20 GPU has found itself at the centre of a geopolitical storm, with its inference capabilities potentially reshaping China's AI landscape and raising security concerns in the U.S.

The H20 GPU, designed for AI inference tasks, may not match the raw power of Nvidia's flagship H100 or the newer Blackwell series. However, according to some industry experts, it can outperform the H100 in certain applications. This GPU, specifically designed to comply with U.S. export controls while handling demanding AI inference tasks, has taken on an outsized role in the context of U.S.-China technology competition and geopolitical strategy.

Prior to the April ban, major Chinese technology companies, including Tencent, ByteDance, and Alibaba, had already accumulated substantial supplies of the H20 GPU. These firms, using cost-efficient AI models from DeepSeek, have not been explicitly named in the articles. However, there was high demand for these H20 chips from Chinese companies, and Nvidia had to stockpile 300,000 units to meet this demand, with some Chinese tech firms being cautioned by authorities about buying the H20 due to alleged security concerns.

Nvidia's CEO, Jensen Huang, has previously expressed disagreement with such concerns. The company believes that maintaining a strong presence in China's software ecosystem is crucial for its long-term market dominance. In fact, Nvidia has placed a new order with TSMC for 300,000 H20 AI GPUs due to unexpectedly strong demand from Chinese technology companies. This order represents nearly one-third of Nvidia's total H20 sales in 2024, which were approximately 1 million units.

However, the U.S. government maintains oversight regarding export controls for the H20 GPU shipments to China. The Commerce Department has not yet approved these licenses, and Nvidia is still required to obtain them. Twenty U.S. national security experts, including former officials from both the Bush and Trump administrations, have urged the Commerce Department to reinstate the ban on the H20. The letter sent to the Commerce Department states that H20's performance could undermine U.S. export control policies.

The potential financial implications for Nvidia following the April ban are substantial. The company cautioned a $5.5 billion inventory write-off and an additional $15 billion in lost sales. If Chinese developers fully transition to competing solutions, such as those offered by Huawei, the long-term consequences could exceed any short-term political repercussions for Nvidia.

Experts argue that the H20's inference capabilities could significantly advance China's AI capabilities and potentially strengthen Chinese military AI efforts. This development could shift the balance of power in the tech race between the U.S. and China, making it a crucial issue for both nations. As the story unfolds, the role of the H20 GPU in the U.S.-China tech competition continues to be a topic of intense debate and scrutiny.