NVIDIA (NVDA, Financial) saw its shares drop 5% today, falling below the $100 mark. This decline follows reports that Huawei, a major Chinese competitor, is set to release an updated AI chip for mass shipment, directly challenging NVDA. This development comes as China seeks alternatives to NVDA's chips due to ongoing U.S. export restrictions on advanced AI technology.

Last week, NVDA experienced a significant drop after writing down $5.5 billion in inventory. This was due to difficulties in obtaining export licenses for its re-tooled AI chips, the H20, to China. The H20, designed for simpler AI models, already faced competitive pressures, allowing rivals to gain an edge in training complex AI models in China.

• Huawei has found a way to match the performance of NVDA's advanced chips. In February, Huawei achieved higher yields for its Ascend 910C AI chip, comparable to NVDA's H100, by utilizing SMIC's manufacturing process. This approach bypasses restricted EUV lithography, enabling Huawei to start mass shipments to Chinese customers as soon as next month.
• Although not as advanced as NVDA's flagship B200, the 910C addresses a gap in the Chinese market. NVDA's H20, a reduced version of the H100, has seen sequential growth, highlighting demand for less powerful chips. With the 910C offering better performance than the H20, it may soon become the preferred choice for Chinese businesses.
• This development is timely for Huawei but creates uncertainty for U.S. competitors and suppliers like Taiwan Semi (TSM, Financial). The economic outlook and trade policy dynamics are uncertain, affecting NVDA and other semiconductor stocks.
  • TSM recently reaffirmed its FY25 revenue growth outlook but noted uncertainties regarding tariffs. Huawei's news could significantly impact NVDA's revenue in China, potentially affecting TSM's ability to meet its targets.

Today's news further underscores NVDA's challenges in China. Export restrictions have already halved shipments to China in Q4 compared to pre-restriction levels. Following the $5.5 billion write-down, NVDA's China business, which makes up about 13% of its total revenue, faces near-term volatility. This trend may continue as investors evaluate the potential earnings impact from ongoing setbacks in China and the effects of tariffs.