Paradox as Nvidia throws away $4.5 billion worth of chips

Despite graphics cards selling out globally, Nvidia is likely to have to cancel all shipments of the H20, a chip line that was tweaked for sale in China.

Nvidia's record quarterly earnings report came with a negative piece of news: A $4.5 billion loss, as the company was unable to deliver chips tweaked to comply with current U.S. restrictions for sale in China.

The Trump administration announced in April that it would impose tighter restrictions on Nvidia’s sales of artificial intelligence (AI) chips to China, requiring the graphics card giant to obtain a license for future deals, even for modified chips.

It is also the first major restriction the Trump administration has imposed on foreign semiconductor sales.

"Evaporated" 4.5 billion USD

Nvidia has been working hard to maintain sales to China despite growing restrictions from the U.S. government . In 2022, the Biden administration introduced rules to limit exports of Nvidia’s best AI chips to China.

There are no more exceptions for Nvidia to ship chips to China. Photo: Bloomberg.

To “get around the law,” Nvidia modified one of its flagship AI chips, the H100, to perform below the US government’s regulatory threshold. The result was the H20 chip, which was designed specifically for the Chinese market.

Although its computing power is limited to AI training, the H20 is “probably the best chip in the world for inference,” according to Jimmy Goodrich, a senior adviser at RAND.

However, the chip’s design and limited capabilities mean it could be difficult to use in other countries. “ It doesn’t really fit anywhere else without a lot of expensive tweaking,” said Arash Azadegan, a professor of supply chain management at Rutgers Business School.

Chad Autry, a supply chain professor at the University of Tennessee, said further tweaking the H20 would be unfeasible because it would incur additional costs for Nvidia. Furthermore, some chips may “not meet the performance needs of customers in other regions” or may be designed “specifically to the specific requirements of Chinese customers.”

Even if it does everything it can to sell the chips by cutting prices, Nvidia would risk damaging its image as a leading provider of innovation.

Remember, Nvidia's latest Blackwell GPUs are powering cutting-edge AIs like OpenAI's unreleased GPT-5 model.

“Nvidia probably doesn’t want to flood the market with discounted chips. That could muddy their product mix, confuse customers, and distract from focusing on the newer Blackwell line,” Azadegan said.

What future for surplus chips?

Fortune quoted supply chain experts interviewed as saying they doubted that the H20 chips would be scrapped. “With so many other growth opportunities, the opportunity cost of reusing, testing, and recertifying these chips is simply too high,” said Alan Amling, a supply chain professor at Haslam College of Business.

In fact, accepting the H20 chip cancellation will have only a minimal impact on Nvidia’s booming business in the short term. In its Q1 2025 revenue report, the graphics card giant reported $44.1 billion in revenue (up 69% year-over-year) and $18.8 billion in net income. That represents a healthy net profit margin of 42.6%.

According to experts' calculations, canceling the H20 chip batch of Chinese customers is the most feasible and safest solution. Photo: Bloomberg.

Additionally, writing down the entire value of the chip provides an immediate tax benefit by reducing Nvidia’s taxable income. Depending on the company’s future sales and expenses prospects, this benefit could outweigh or nearly equal the financial benefit of selling the chip at a deep discount, Fortune reported.

The latest rules for Nvidia are a sign that the Trump administration will continue to pursue a tight grip on China’s tech development. DeepSeek’s rise in January underscored the country’s rapid advancement in AI, an area seen as a key geopolitical battleground in the long term.

At a nomination hearing in January, US Commerce Secretary Howard Lutnick asserted that Nvidia chips contributed to DeepSeek's development, and that such moves from the US side need to stop.

“If they want to compete with us, let them compete, but stop using our tools to compete. I will be very tough on that,” Lutnick stressed.

According to the New York Times , if it has to withdraw from this market, the graphics card giant is worried about losing sales to Huawei, China's leading AI chip maker. Huawei has even begun to pose challenges to Nvidia in AI chips worldwide.

“This kills Nvidia’s access to a key market and they will lose momentum in the country. Chinese companies will simply switch to Huawei,” said analyst Patrick Moorhead of Moor Insights & Strategy.

Source: https://znews.vn/ngich-ly-khi-nvidia-vut-bo-so-chip-tri-gia-4-5-ty-usd-post1558306.html