Sunday, 2024 July 21

Nvidia’s AI chip faces weak demand and fierce competition in China

Nvidia’s H20 artificial intelligence chip, developed specifically for the Chinese market, is experiencing a challenging debut. Despite high expectations, Reuters reported that an abundant supply has forced the chip to be priced below Huawei’s rival product, the Ascend 910B.

This price change underscores the intense competition Nvidia faces in China amid US sanctions on AI chip exports and heightened local competition, casting doubts over its future in a market that contributed 17% to its revenue for fiscal 2024. The growing competitive pressure in China also adds a cautionary note for US investors, as Nvidia’s shares have recently extended a stunning rally following a robust revenue forecast.

Nvidia, which dominates the AI chip market, introduced three chips tailored for China late last year after US sanctions prevented it from exporting its most advanced semiconductors. Among these, the H20 is the most powerful Nvidia product available in China. However, supply chain sources have revealed that the market is flooded with these chips, signaling weak demand. As a result, the H20 is being sold at over a 10% discount to Huawei’s Ascend 910B.

Nvidia H20 is a de-facto downgrade of the company’s flagship H100 AI chip series, specifically for Chinese market.

This situation alludes to an uncertain outlook for Nvidia in China, where it is striving to maintain its market share. The Chinese market is of great significance to Nvidia and AI chip manufacturers, with forecasts indicating it will account for over 30% of the global AI industry by 2035.

Jensen Huang, co-founder, president, and CEO of Nvidia, warned during the company’s recent earnings call that the company’s business in China has been “substantially lower than the levels of the past,” citing sanctions as a limitation. CFO Colette Kress also remarked that Nvidia is expecting “the market in China to remain very competitive going forward.”

The H20’s performance is crucial for Nvidia’s business in China, while its longer-term prospects will depend on how it competes with local tech giant Huawei. Huawei, which began challenging Nvidia last year, is expected to dramatically increase its shipments of the Ascend 910B chip this year, with the chip reportedly outperforming the H20 in key metrics.

According to Reuters, Huawei has pulled ahead in recent months, with only five state or state-affiliated buyers showing interest in Nvidia’s H20 chips, compared to over a dozen for Huawei’s 910B, based on government procurement data accessed by the media outlet. This data, although not exhaustive, suggests a stronger preference for Huawei’s products in the Chinese market.

Server distributors in China are selling the H20 at around RMB 100,000 (USD 13,800) per card and the eight-card server for about RMB 1.1–1.3 million (USD 151,890–179,500) per server. In comparison, Huawei’s 910B is priced above RMB 120,000 (USD 16,570) per card, with its eight-card server starting at RMB 1.3–1.5 million (USD 179,500–207,120) per server. Prices for both the H20 and Huawei’s 910B can fluctuate depending on the size of orders placed.

These are still early days for the AI industry at large, but Nvidia’s skirmish in China could very well define the strength of its foothold in the coming years.

36Kr Global Writers
36Kr Global Writers
The tech ecosystem is roaring. Unicorns valued at billions of dollars have emerged worldwide, while venture capital and strategic investors are constantly on the lookout for the next big thing. 36Kr Global is committed to establishing ties between global stakeholders and providing the most vital information about China’s tech scene and capital markets.
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