Huawei plans mass shipment of new AI chip to China, challenging Nvidia

What's happening

According to a Reuters report, Huawei is preparing to begin mass shipments of its new AI chip to China as early as next month. This chip, which combines two processors into a single package, would provide Chinese companies with an alternative to Nvidia's H20 chip that now faces export restrictions due to US government policies.

Why it matters

This development could significantly impact Nvidia, which has already announced it will take a $5.5 billion write-off in the next quarter due to these restrictions. The concern for Nvidia is clear – if Huawei successfully fills the void left by the restricted H20 chips, Nvidia could potentially lose access to the growing Chinese AI market.

The bigger picture

The restrictions on AI chip exports to China have been a bipartisan effort in Washington, continuing from the Trump administration through the Biden administration. Industry analysts suggest that demand from China has been increasing, particularly as companies explore enabling AI on smartphones.

Matthew Bryson, a semiconductor analyst at Wedbush Securities, notes that Chinese companies had been accepting Nvidia's less powerful H20 chips (compared to what Nvidia ships to the rest of the world) because they valued Nvidia's software ecosystem. However, this new Huawei chip could change that dynamic.

What this means for investors

Despite the potential loss of the Chinese market, Bryson remains optimistic about Nvidia's future, suggesting that with or without China, Nvidia will remain the dominant supplier of AI hardware through at least 2027, largely due to their CUDA software ecosystem advantage. He believes that AI adoption will continue to expand across industries, with Nvidia being the primary beneficiary on the hardware side.

The Taiwan Semiconductor angle

Taiwan Semiconductor (TSMC), which manufactures chips for many leading technology companies, is also facing market concerns despite recently claiming they would meet supply expectations. The Taiwan market was led lower by TSMC shares amid worries about the impact of these trade restrictions.

Bryson suggests TSMC faces similar challenges to Nvidia – while AI has driven significant growth for the company, macroeconomic conditions could impact spending. However, he believes TSMC will maintain its leadership position in advanced chip manufacturing in the coming years,