Nvidia Faces Dangerous China Competition

By Douglas A. McIntyre Published Apr 28, 9:15AM EDT

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Huawei Technologies may soon make chips that compete with the most advanced products from Nvidia Corp. (NASDAQ: NVDA).
Then, China will not need to import Nvidia chips.

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Nvidia Faces Dangerous China Competition — © ASKA / E+ via Getty Images

Nvidia Corp. (NASDAQ: NVDA | NVDA Price Prediction) is struggling because many of its chips cannot be sold in China. Due to this, it has even taken a $5.5 billion write-off. Another difficulty in the number two nation in the world based on gross domestic product is that its competition is about to deepen. Local tech giant Huawei Technologies is on a path to building chips that will compete with Nvidia’s most advanced products. Then, China may not need to import Nvidia chips, which would sharply damage its long-term revenue.

The Wall Street Journal said that the company’s new chip “uses packaging technologies to integrate more silicon dies together to boost performance, said people familiar with the matter. The people said the 910D is power hungry and less power-efficient than Nvidia’s H100.” That means it will still operate with a disadvantage. However, for Chinese companies, the new chip may be the only alternative to Nvidia, making adoption brisk if the United States continues its roadblock. The U.S. rule is helping China’s homegrown industry grow to some extent. As is often the case, the Chinese government is pushing the adoption of products created and built within its borders.

While Huawei chips require more energy than those from Nvidia, the central government has more control over China’s electricity than in America. The competition in the United States for electricity to power AI server centers has become a challenge for Nvidia customers.

Another Blow to Nvidia’s Prospects

The news is another blow to Nvidia’s prospects. Its stock is down 17% this year, compared to 27% a few weeks ago. There are several reasons for the trouble. Investors have become worried about the pace at which the most prominent AI companies are building out their server farms. According to PYMMTS, both AWS and Microsoft have slowed their deployment. Investors have started to worry that the return on investment from AI products may be slower than expected.

Nvidia’s stock price relies on rapid adoption. In the current quarter, analysts expect Nvidia to have revenue of $43.1 billion, up from $26 billion in the same quarter a year ago. Earnings are expected to rise to $0.89 a share from $0.61.

Nvidia’s stock is up 1,470% in the past five years. At some point, gravity is going to catch up with it.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.