Nvidia’s ongoing challenges in China have come to light once more, highlighting Jim Cramer’s statement this week regarding the difficulties associated with owning the AI chipmaker’s stock amid the current Trump administration. In a securities filing on Tuesday evening, Nvidia announced that the U.S. government now mandates the company to secure an export license to send its H20 artificial intelligence chips to China. According to Nvidia, this requirement will remain “in effect for the indefinite future.” As a result, the company plans to record a $5.5 billion charge for its fiscal 2026 first quarter, which concludes this month, related to H20 inventory, purchase commitments, and associated reserves. Analysts interpret the inventory charge as a sign that Nvidia does not anticipate receiving a license. Following this news, Nvidia’s shares dropped by over 6% in premarket trading. This situation reinforces the reality that Nvidia — a key player in the generative AI surge on Wall Street over the last two years, with remarkable sales, profits, and share-price growth — is now facing a notably precarious situation. Nvidia has encountered geopolitical challenges in the past; indeed, the H20, designed for the Chinese market, was created to adhere to restrictions implemented during Joe Biden’s presidency, which prohibited the company from exporting its most advanced AI chips to Chinese clients due to national security concerns. In January, the Biden administration established new export regulations that introduced global licensing requirements for AI chips and related technologies. At that time, Jim described the announcement as “absurd.” Nevertheless, as of Wednesday, the so-called “AI diffusion” rules are still set to take effect next month, adding yet another layer of geopolitical tension for Nvidia’s stock. President Donald Trump’s tariff conflict with China and rising apprehensions around AI investments generated a turbulent environment even before Tuesday’s announcement. Jim remarked during a CNBC segment on Tuesday night that the H20 export controls are precisely why he has advised reducing Nvidia holdings recently. “You can’t own it like you used to; trimming is necessary,” he stated. “It’s quite surprising, but is it really?” Jim continued, “I penned [my column on Sunday] because I anticipated occurrences like this. … The landscape has changed.” The $5.5 billion in inventory charges is likely to correlate with at least $12 billion in revenue, based on gross margin estimates nearing 60%, according to analysts at Morgan Stanley in a note to clients on Wednesday. While the analysts maintained their overweight buy rating on Nvidia’s stock, they also revised their sales forecasts for the coming quarters to remain cautious. For the current fiscal year, they now project Nvidia to generate approximately $190.8 billion in revenue. “This should mitigate a known concern, but we aren’t entirely out of the woods yet. We’ve reiterated that export controls, rather than tariffs, pose the main risk for [Nvidia],” wrote analysts from Morgan Stanley, adding that “demand is price-insensitive, but preventing customers from purchasing products is a limitation.” Several firms on Wall Street, including Piper Sandler and Bank of America, have adjusted their price targets on Nvidia while retaining their buy ratings. Analysts from TD Cowen expressed their continued confidence in Nvidia as a leader in AI computing despite the company’s immediate obstacles in China. NVDA YTD mountain Nvidia’s stock has displayed significant year-to-date performance. Nvidia investors started to face a shift earlier this year when, in late January, Chinese AI startup DeepSeek introduced an efficient AI model reportedly developed at a fraction of the cost of comparable models produced by U.S. tech firms — triggering a swift sell-off in Nvidia’s shares and others associated with the AI sector. For a short period in February, Nvidia’s stock rebounded, recovering nearly all the losses incurred due to DeepSeek. CEO Jensen Huang subsequently argued that some innovations by the startup would ultimately drive additional demand for computing power, thus increasing the need for Nvidia’s leading AI chips. While the validity of Huang’s argument is up for debate, it is evident that the sentiment surrounding the AI sector shifted in a post-DeepSeek landscape, with increasing skepticism about the viability of AI expenditures and Nvidia’s rapid expansion. The successes of DeepSeek may have, in part, influenced the Trump administration’s crackdown on the H20. In the wake of its emergence, multiple U.S. lawmakers called for stricter export regulations on Nvidia chips. A late-February report from Reuters indicated that Chinese tech giants like Tencent and Alibaba were ramping up their orders for the H20 due to the demand for DeepSeek’s models. Sales to clients in China and Hong Kong accounted for 13% of Nvidia’s total revenue of $130.5 billion in the year leading up to January. In its February annual report, Nvidia noted that its sales in China as a portion of data center revenues — covering AI chips — remained “well below levels seen prior to the introduction of export controls in October 2023.” This was when the Biden administration tightened its initial round of AI technology restrictions from the previous year. Besides DeepSeek and export regulations, Trump’s tariffs and trade conflict with China have heightened concerns among investors regarding Nvidia this year. The reasons for these concerns are essentially two-fold. The first pertains to the company’s direct exposure to tariffs, which has been complex since Trump initially imposed import duties on Canada and Mexico — later granting exemptions for goods compliant with a U.S.-Mexico-Canada trade agreement — as many AI servers utilizing Nvidia’s chips are assembled in Mexico before entering the U.S. According to Bernstein chip analyst Stacy Rasgon, those servers appear to comply with the trade agreement. However, uncertainty regarding Nvidia’s tariff implications remains high, even with recently announced exemptions for chips entering the U.S. from China, as Trump has stated that he plans to announce sectoral tariffs for chips and other electronic products soon. Nvidia’s AI chips are primarily produced by Taiwan Semiconductor Manufacturing in Taiwan, with some now being manufactured at TSMC’s new facility in Arizona. Nvidia revealed this TSMC development on Monday, alongside a commitment to build AI supercomputers entirely in the U.S. for the first time — a production endeavor estimated to be worth $500 billion over the next four years. Jim stated on Tuesday night that Nvidia’s pledge “buys them nothing” from the Trump administration; however, it is noteworthy that, according to Nvidia’s securities filing, the company learned of the H20 license requirement on April 9, followed by the notification regarding the “indefinite future” timeframe on Monday. The second factor linking Trump’s trade conflict to Nvidia’s stock performance relates more to economic apprehensions, prompting investors to gravitate toward defensive stocks perceived as more resilient during a recession. At a macro level, there are fears that decelerating economic growth could adversely affect semiconductor demand and lead some of Nvidia’s major customers to scale back their investments in AI. “There’s risk for all players. It’s not just an Nvidia issue or a Broadcom issue,” Rasgon remarked, referencing another AI chip manufacturer included in the Club’s portfolio. “Semiconductors are closely tied to macroeconomic trends. Their correlation with GDP is very high, and during economic downturns, semiconductor performance often suffers. However, I might argue that AI spending may continue to be prioritized, especially as it relates to enhancing productivity and similar factors.” It’s premature to ascertain the answer to that question. How investors should approach Nvidia’s stock at this juncture has been evident to Jim for several days, particularly due to the new export controls that further impact its operations in China. (Jim Cramer’s Charitable Trust holds a position in NVDA. Click here for a complete list of the stocks.) As a member of the CNBC Investing Club with Jim Cramer, you will receive a trade alert prior to Jim executing any trade. 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People visit the Nvidia booth during the Apsara Conference 2024 at Yunqi Town in Hangzhou, Zhejiang Province of China, on Sept. 19, 2024.
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Nvidia‘s China issues have surfaced yet again, reiterating why Jim Cramer has mentioned this week that the AI chipmaker’s stock has become challenging to hold during the current Trump administration.
