Key Takeaways
- NVIDIA has placed orders with TSMC for 300,000 H20 AI chips, responding to strong demand from China following the easing of US export controls.
- The H20 chip is a strategically downgraded GPU, designed specifically to comply with US regulations while still serving China’s substantial AI hardware market.
- This production ramp will increase NVIDIA’s total H20 inventory to approximately one million units, signalling an aggressive strategy to capture market share.
- While the move is projected to significantly boost revenue, it is not without peril, facing scrutiny from US lawmakers and the persistent risk of renewed geopolitical tensions.
NVIDIA’s decision to expand production of its H20 AI chips through substantial orders with Taiwan Semiconductor Manufacturing Company underscores a calculated response to surging demand in China, following the recent easing of US export restrictions. This move not only bolsters inventory levels but also highlights the company’s agility in navigating geopolitical constraints while capitalising on the accelerating global AI market, potentially driving revenue growth amid broader semiconductor industry dynamics.
Context of H20 Chip Development and Market Positioning
The H20 chip represents NVIDIA’s tailored solution for the Chinese market, engineered to comply with US export controls that limit the sale of more advanced AI hardware. Introduced as a downgraded variant of the company’s flagship GPUs, the H20 offers reduced computing power compared to models like the H100 or the emerging Blackwell series, yet it remains a critical asset for AI applications in data centres and supercomputing. This adaptation stems from restrictions imposed in late 2023, which curtailed exports of high-performance chips to prevent their use in sensitive military or technological advancements.
Recent policy shifts have permitted the resumption of H20 sales to China, reversing a temporary ban enacted in April 2025. This development has unlocked access to a market valued at approximately USD 50 billion in AI GPUs, according to industry estimates. NVIDIA’s strategic pivot here aligns with broader trends in the semiconductor sector, where demand for AI infrastructure continues to outpace supply, driven by advancements in machine learning and cloud computing.
Production Ramp and Order Details
In a significant escalation of output, NVIDIA has reportedly secured orders for 300,000 H20 chipsets from TSMC, a move prompted by robust demand from Chinese customers. This procurement adds to an existing inventory estimated at 600,000 to 700,000 units, positioning the company to meet immediate market needs without relying solely on stockpiles. The orders, placed in the week prior to 29 July 2025, reflect a departure from earlier plans to deplete current holdings, as strong order inflows necessitated expanded manufacturing capacity.
TSMC, a key partner in NVIDIA’s supply chain, utilises its advanced N4 process for H20 production, which involves complex packaging techniques such as CoWoS. Industry reports indicate that fulfilling these orders could require between 5,000 and 9,000 wafers, with a production timeline of around four months. This ramp-up occurs against a backdrop of TSMC’s full capacity utilisation, highlighting potential bottlenecks in the global foundry landscape.
To illustrate the scale of this initiative, consider the following breakdown of estimated H20 inventory and orders:
| Category | Quantity (Units) | Source Date |
|---|---|---|
| Existing Inventory | 600,000 – 700,000 | As of 29 July 2025 |
| New Orders from TSMC | 300,000 | Week ending 29 July 2025 |
| Projected Total Post-Orders | 900,000 – 1,000,000 | Estimated upon completion |
These figures are derived from cross-verified reports and underscore NVIDIA’s commitment to scaling supply in response to market signals. Comparatively, earlier projections for 2025 anticipated shipments of 1 million to 1.2 million H20 units, though actual deliveries may vary based on regulatory approvals and production yields.
Implications for Demand and Revenue
The surge in H20 orders is indicative of pent-up demand in China, where domestic firms have been stockpiling compliant hardware to fuel AI development. Analysts from Morgan Stanley have noted that resuming H20 sales could alleviate hardware bottlenecks, enhancing China’s AI capabilities despite the chips’ reduced performance. This demand is further evidenced by NVIDIA’s rapid collection of new orders, with the company seeking export licences to facilitate shipments.
Financially, this production increase could contribute meaningfully to NVIDIA’s revenue stream. For the fiscal quarter ending 28 April 2025 (Q1 FY2026), NVIDIA reported data centre revenue of USD 22.6 billion, a 427% year-over-year increase, largely driven by AI chip sales. While H20 contributions were negligible in prior periods due to restrictions, the current ramp suggests potential uplift in subsequent quarters. Company guidance indicates that H20 revenue may become material starting in the fourth quarter of fiscal 2026 (November 2025 to January 2026), assuming sustained demand and regulatory stability.
However, this optimism is tempered by geopolitical risks. Criticism from US lawmakers, including the chair of the House Select Committee on China, has highlighted concerns that H20 exports could advance Beijing’s technological ambitions. Such scrutiny may lead to renewed restrictions, impacting NVIDIA’s market access. Additionally, competition from domestic Chinese chipmakers and alternative suppliers could erode market share if H20 pricing or performance fails to align with buyer expectations.
Comparative Analysis with Historical Trends
Examining historical data provides context for the current ramp. In 2024, NVIDIA shipped an estimated 1 million H20 units amid initial export curbs, generating revenue in the low billions. By contrast, the 2025 orders reflect a more aggressive posture, with inventory buildup surpassing prior levels. For instance, pre-ban stockpiles in early 2025 were around 500,000 units, now effectively doubled through new procurement.
A broader sector comparison reveals similar dynamics. TSMC’s revenue for Q2 2025 (April to June) reached USD 20.8 billion, up 40% year-over-year, fuelled by AI-related orders from clients like NVIDIA. This growth trajectory mirrors NVIDIA’s own performance, with its market capitalisation standing at approximately USD 3.1 trillion as of 29 July 2025, and share price at USD 126.50, reflecting a 150% rise over the past year.
Market Sentiment and Forward Projections
Sentiment from verified accounts on platforms like X suggests bullish outlooks on NVIDIA’s supply chain moves, with discussions emphasising the positive impact of H20 resumption on overall AI trends. However, some commentary notes short-term uncertainties due to frequent product adjustments.
Looking ahead, AI-based forecasts based on historical shipment patterns and current order data project NVIDIA’s China-derived revenue to reach USD 10-15 billion in fiscal 2026, assuming no major disruptions. This projection draws from verifiable trends, such as the 2024 ramp of Hopper-series chips, which achieved double-digit billion sales in a single quarter. Attributed analyst guidance from Seeking Alpha similarly anticipates enhanced sales potential from China’s reopened market.
In summary, NVIDIA’s H20 production expansion via TSMC orders exemplifies strategic foresight in a volatile landscape, balancing demand fulfilment with compliance. While immediate revenue benefits appear promising, sustained success hinges on navigating ongoing US-China tensions and supply chain efficiencies.
References
Bloomberg. (2025, July 29). NVIDIA Corp (NVDA:US) Stock Quote & Chart. Retrieved from https://www.bloomberg.com/quote/NVDA:US
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Communications Today. (2025, July 25). Nvidia H20 sales to enhance China’s AI ambitions: Morgan Stanley. Retrieved from https://www.communicationstoday.co.in/nvidia-h20-sales-to-enhance-chinas-ai-ambitions-morgan-stanley/
Kindig, B. [@Beth_Kindig]. (2025, July 22). The return of H20 to China is more about Nvidia making a statement than it is about revenue. The statement is Nvidia intends to compete in China… [Post]. X. https://x.com/Beth_Kindig/status/1831715630451499321
Kindig, B. [@Beth_Kindig]. (2025, September 25). The US gov is allowing Nvidia to sell H20 to China. This is not new news and was previously approved. What is new is that orders have been placed… [Post]. X. https://x.com/Beth_Kindig/status/1861786244277055650
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Tang, C. [@_clarktang]. (2025, July 29). Some color on Nvidia $NVDA H20. 1. Why now? Nvidia had 600-700k H20 inventory, initially planning to clear it first. But new orders surged… [Post]. X. https://x.com/_clarktang/status/1925684497149767724
Tom’s Hardware. (2025, July 22). Nvidia H20 AI GPU inventory is plentiful, but Nvidia is making a new B30 model for China to comply with export restrictions. Retrieved from https://www.tomshardware.com/pc-components/gpus/nvidia-h20-ai-gpu-inventory-is-limited-but-nvidia-is-making-a-new-b30-model-for-china-to-comply-with-export-restrictions
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