NVIDIA Wins China Sales Approval: Will H20 Chip Deal Boost Growth?

NVIDIA Corporation NVDA has received approval to sell its H20 artificial intelligence (AI) chips in China after signing a deal with the U.S. government. This marks a significant development for the company’s growth prospects. Under the terms of the agreement, NVIDIA will pay 15% of total revenues from H20 sales in China to the U.S. government. While this revenue-sharing condition may slightly impact margins, the deal opens a valuable door to one of the largest AI markets globally.

NVIDIA’s H20 chips are designed to meet U.S. export control rules while still offering strong AI computing capabilities. China is a major consumer of advanced chips for applications in data centers, cloud computing and AI development. NVIDIA had faced a sales setback in the region due to tightened U.S. restrictions on high-end chip exports.

NVIDIA had estimated the restrictions to cost it $8 billion in H20 lost sales to China in the second quarter of fiscal 2026. In the first quarter, it had reported losing $2.5 billion in H20 chip sales in China. However, the latest approval will help the company re-enter the market legally and competitively.

We believe the deal could help NVIDIA recover lost market share in China and boost its global revenue base. The AI boom in China, driven by large tech companies and government-backed projects, could create steady demand for H20 chips. Although the 15% revenue payment may weigh slightly on profitability, the larger volume of sales could offset that impact over time.

The latest arrangement with the U.S. government could strengthen NVIDIA’s presence in China and boost revenue contribution from the country, which dropped 13% in fiscal 2025 from more than 21% in fiscal 2023. Access to the Chinese market will support its overall revenue growth and maintain its position as a leader in AI chip technology. The Zacks Consensus Estimate for fiscal 2026 revenues indicates year-over-year growth of 52.2%.

How NVIDIA’s Rivals Compete in AI Chip Market

NVIDIA’s major competitors, Advanced Micro Devices AMD and Intel INTC, are also stepping up their capabilities in the AI chip market.

Advanced Micro Devices is witnessing growing adoption for its MI300X GPUs. Several hyperscalers are testing AMD’s solutions as alternatives to NVIDIA’s Blackwell, especially in cost-sensitive or specialized AI workloads. Advanced Micro Devices is also building a strong software stack to grab more customers.

Intel is focusing on both CPUs and AI accelerators to grab a market share in the data center space. The company is promoting its Gaudi 3 AI chips as a low-cost option for training and inference. Intel is also working with major cloud providers to expand the adoption of its AI hardware.

NVIDIA’s Price Performance, Valuation and Estimates

Shares of NVIDIA have risen around 36.4% year to date against the Zacks Computer and Technology sector’s gain of 13%.

From a valuation standpoint, NVDA trades at a forward price-to-earnings ratio of 36.66, higher than the sector’s average of 28.

The Zacks Consensus Estimate for NVIDIA’s fiscal 2026 and 2027 earnings implies a year-over-year increase of approximately 42.5% and 32.5%, respectively. Estimates for fiscal 2026 have been revised upward in the past 30 days, and there have been upward revisions in the past seven days for fiscal 2027.

NVIDIA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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