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NVIDIA (NVDA -5%) takes another step lower today, breaking back below the $100 mark following a Reuters report that one of its largest Chinese competitors, Huawei, is prepping an updated AI chip for mass shipment, putting NVDA directly in its crosshairs. The news comes as China looks to quickly find a suitable replacement for NVDA's chips following extended U.S. export curbs on advanced AI chips to the region.

Last week, NVDA gapped lower after writing down its inventory by around $5.5 bln, indicating challenges in obtaining licenses to export its re-tooled AI chips, the H20, to China. These underpowered chips were already placing NVDA on a path toward competitive hurdles as the H20 was primarily useful for simple AI models, opening up the floodgates for competitors to take a commanding lead in China to fulfill the need to train complex AI models.

• It did not take long for a competitor to uncover a way to realize similar performance as NVDA's more advanced chips. Back in February, Huawei extracted significantly higher yields for its Ascend 910C AI chip, which boasts a similar performance as NVDA's H100, using a manufacturing process from SMIC, a China-based chip maker, which allowed Huawei to circumvent restricted EUV lithography. Leveraging this manufacturing process, Reuters reported that Huawei can begin mass shipments to Chinese customers as early as next month.
• While not on the same level as NVDA's flagship B200, or Blackwell, platform, the 910C fills a void in the Chinese market. For perspective, NVDA's H20, which was a scaled-down version of the H100, was still maintaining sequential growth over the past few quarters, illuminating healthy demand for the watered-down chip. With Huawei's 910C touting better performance than the H20, it may quickly become the top choice among Chinese businesses.
• The development from Huawei could not come at a better time for the China-based tech giant. However, for its U.S.-based competitors and their suppliers, like Taiwan Semi (TSM), it is coinciding with elevated uncertainty over the near-term future of the economy and how dynamic trade policy may shake out, pushing shares of NVDA and many other semiconductors lower today.
  • On a side note, TSM reiterated its FY25 revenue growth outlook last week but noted that the picture over tariffs was not entirely clear yet. The news surrounding Huawei may materially dent NVDA's China revenue, consequently clouding TSM's ability to reach its annual targets.

Today's Reuters article further highlighted NVDA's outsized headwinds in China. The export curbs put in place under the previous administration were already acting as a roadblock, with shipments to China roughly halved in Q4 (Jan) compared to where they were before the restrictions. We warned last week after the $5.5 bln write-down, which signaled near-term gloom for NVDA's China business (approximately 13% of total revenue) that volatility could spike over the next few months as the fallout from tariffs begins to unfold. This trend may persist as investors assess the potential earnings hit from continued setbacks in China alongside the material effects of tariffs.