Analyst Note| Abhinav Davuluri, CFA |
On Aug. 26, Nvidia announced that the U.S. government imposed a new license requirement for certain Nvidia data center graphics processing units, or GPUs, (the current generation A100 and upcoming H100) exported to China or Russia. We note Nvidia hasn't been selling products to customers in Russia since the outset of the Russia-Ukraine war. Nvidia’s major cloud customers include Chinese firms such as Alibaba, Tencent, and Baidu for a variety of applications such as natural language processing, image recognition, and deep recommendation engines. The purpose of the new license agreement is to address risks related to military end use for Nvidia’s AI-related GPUs in the escalating U.S.-China tensions. In an SEC filing, Nvidia highlighted its fiscal third-quarter revenue outlook included about $400 million in potential revenue to China that could be subject to the new license requirement. We believe many of the end use applications for Nvidia’s data center GPUs at Chinese customers are consumer-centric, and thus we think the firm should be able to attain licenses for these customers.