Nvidia has suspended production of its H20 chips for the Chinese market due to Beijing’s security concerns regarding potential surveillance technologies. Simultaneously, nine analysts raised price targets this week alone, pushing the average price to a historic high of $194 before quarterly results are released on August 27.
Nvidia Stock Under Pressure from Chinese H20 Chip Review
Nvidia instructed its partners, including Arizona-based Amkor Technology and South Korean Samsung Electronics, to halt component production for H20 chips. The reason stems from security concerns raised by China’s cybersecurity administration, which summoned the chip manufacturer over suspicions of “backdoors” in these specialized chips.
CEO Jensen Huang confirmed during Friday’s interview in Taiwan that China raised questions about potential security vulnerabilities in chips designed for the Chinese artificial intelligence market. “We clearly stated that no backdoors exist. Hopefully, our response will be sufficient,” Huang said, adding that the company was surprised by these inquiries.
According to sources, the Chinese government ordered technology companies including ByteDance (TikTok owner), Alibaba, and Tencent to completely halt H20 chip orders until a security review is completed.
Investment Impact of Export Restrictions Reaches Billions
Complications with the Chinese market represent a significant burden for Nvidia investors and shareholders:
- The company wrote off $4.5 billion worth of unsold H20 chip inventory
- Export restrictions reduced revenue by $2.5 billion in the last quarter
- The Chinese market represents significant growth potential in artificial intelligence
The situation complicates the return of H20 chips to the Chinese market, even though Washington signaled in May the possibility of issuing export licenses for these chips to China after their de facto ban in April. Nvidia investments thus remain affected by geopolitical risks.
Nvidia Stock at Historic Highs According to Analysts
While Nvidia addresses geopolitical complications, investment analysts show significant optimism before the quarterly results release on August 27. Nine analysts this week alone raised their 12-month price targets, pushing the average price to nearly $194.
“What you see is recognition that Nvidia’s growth is absolutely reliable,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “Analysts are raising projections because they simply must; the stock won’t slow down.”
Nearly 90 percent of analysts recommend Nvidia stock for purchase, with Cantor Fitzgerald analysts raising their price target to $240 from the previous $200.
Growing AI Investments Support Nvidia Market
Positive signals for Nvidia stock come from its largest customers. Meta Platforms (Facebook), Microsoft, Alphabet (Google), and Amazon announced increased investments in artificial intelligence infrastructure worth billions of dollars. Nvidia derives approximately 40 percent of total revenue from these four technology giants.
Analysts expect another quarter of double-digit revenue growth, supporting investor optimism despite geopolitical risks associated with the Chinese market.
High Investor Expectations Increase Stock Volatility Risk
Significant investor expectations present a risk of substantial fluctuations for Nvidia stock. As the largest component of the S&P 500 index, the company has a crucial influence on the overall development of the US stock market.
Any disappointment from Nvidia when releasing results could trigger a broader tech stock selloff that would affect the entire market. China’s national security review of H20 chips further emphasizes the company’s difficulties in managing business amid growing tensions between the US and China regarding technology exports.
