Nvidia: Back in business in China; Raising fair value estimate
Nvidia is poised to become more dominant than ever as it is allowed to sell its key H20 GPUs in China.
Key Morningstar Metrics for Nvidia
- Fair Value Estimate: $170.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Very High
Nvidia NVDA announced that the United States will reverse course and approve the sale of H20 graphics processors into China for artificial intelligence workloads. Sales of the H20 were banned 90 days ago, causing Nvidia to incur a $5.5 billion writeoff and miss out on tens of billions in revenue.
Why it matters: We’re pleasantly surprised by the reversal, as the resumption of H20 sales may enable Nvidia to reemerge as the primary (if not dominant) technology provider for AI in China. The H20 is still throttled down versus Nvidia’s best products, but it remains in high demand in China.
- We assume the reversal stays in place, although we are not wholly optimistic about the latest restrictions. If retained, we think Nvidia will remain more dominant in AI than ever, supporting its outstanding revenue growth and gross margins.
The bottom line: We raise our fair value estimate for wide-moat Nvidia to $170 per share from $140. We maintain our Very High Uncertainty Rating, as the outlook for China (and AI demand in general) is bright but fluid, and it may reverse rapidly and without much warning.
- Nvidia’s stock now appears fairly valued as we reinsert H20 revenue into our model, assume China revenue is greater than our pre-ban expectations, and boost our longer-term gross margin assumptions.
- We are reinserting $5 billion of revenue to the October and January quarters, and about $30 billion into fiscal 2027 and future years. We expect a near-term rush of H20 orders later this year and assume that Chinese AI firms buy H20’s with confidence in the years ahead.
Long view: The US reversal may signal a change in overall AI policy versus China, as Advanced Micro Devices AMD will receive a similar benefit.
- Rather than block US AI accelerator sales into China, enabling Chinese AI firms to support other vendors like Huawei, these firms might remain dependent on the hardware, software, and networking provided by US firms like Nvidia.
