• Nvidia announces a projected $5.5 billion charge due to new U.S. export restrictions on its H20 chips to China.
• The U.S. government now requires licenses for the sale of H20 AI chips, critical for the Chinese market.
• China accounted for 13% of Nvidia's revenue in the last fiscal year, highlighting its significance to the company.
• The restrictions come amid an escalating trade war between the U.S. and China, impacting major tech firms.
• Analysts suggest this situation may lead Chinese firms to turn towards domestic chip manufacturers, like Huawei.

Nvidia stated that it expects to incur a charge of approximately $5.5 billion in its upcoming quarterly results due to new U.S. export licensing requirements imposed on its H20 artificial intelligence chip, a critical product for sales in China. The company noted that U.S. officials informed them that these restrictions would remain in place indefinitely, complicating its operating environment in one of its largest markets, according to Reuters.

The H20 chip was specifically modified to comply with earlier export controls; however, the tightened restrictions prevent Nvidia from fulfilling orders from major Chinese companies such as Tencent and Alibaba. Analysts project this development could severely impact Nvidia's revenue in China, which accounted for around 13% of its total sales in the last fiscal year, based on reports from South China Morning Post.

The situation is further complicated by the ongoing U.S.-China trade tensions, which could shift tech firms in China toward domestic competitors like Huawei. Experts suggest that Chinese companies will inevitably seek alternatives, given that the H20 represents the last Nvidia chip they could previously acquire under US regulations, as articulated by Reuters.

Nvidia's shares experienced a notable decline of 6% following the announcement, reflecting the market's reaction to the anticipated financial setback due to these restrictions. Despite company's planned investment of $500 billion in AI infrastructure within the U.S., concerns heretofore expressed result in significant uncertainty regarding future revenue streams from China, as indicated by Forbes.

In a filing to the SEC, Nvidia also highlighted that the licensing requirement adds complexity to their operational model, which relied heavily on revenue from these chips. The regulations pose a severe threat to the company's intended growth strategies in a market that was already in decline due to previous restrictions, as reported by BBC.