Nvidia has been the undisputed leader in chip manufacturing, powering everything from AI to cloud computing. But now, the company faces a difficult choice — whether or not to destroy $4.5 billion worth of chips. Here’s how it got to the point.
The impact of U.S. export restrictions
It’s all because of the United States’ export ban on chips sold to China, a restriction that has been in place under both the Biden and Trump administrations. These measures block the sale of even second-tier chips, such as Nvidia’s H20, to China. The H20 chips were developed specifically for the Chinese market, designed to comply with export regulations. But as a result of the ban, Nvidia cannot sell or repurpose these chips elsewhere.
A product stuck in limbo
The H20 chips are now sitting unused. Nvidia cannot sell them to other customers without major adjustments, and repurposing them could involve expensive modifications. Selling them at a discounted price might also devalue the brand’s premium position in the market. The company is left with a huge inventory it cannot offload, leading to a $4.5 billion write-off.
Despite this massive loss, Nvidia is still managing to salvage some value. By reusing certain materials, Nvidia reduced the original write-down from $5.5 billion to $4.5 billion. This move may not only cushion the immediate blow but could offer a tax benefit by lowering the company's taxable income.
The bigger picture: Geopolitics and brand image
Nvidia’s dilemma underscores how geopolitical tensions can reshape the tech landscape. The company’s H20 chips were specifically engineered to meet Chinese market demands, and now they’re sitting unused due to shifting political landscapes. "It doesn’t really fit anywhere else without a lot of expensive tweaking," says Arash Azadegan, a professor of supply chain management at Rutgers Business School.
Even if Nvidia could sell the chips at a deep discount, it risks damaging its premium brand, known for powering cutting-edge AI like OpenAI’s GPT-5 model. The company’s Blackwell GPUs are used by major tech players like Amazon, Microsoft, and Google. “Nvidia probably doesn’t want to flood the market with discounted chips—it could mess with their pricing,” adds Azadegan.
A long-term setback, but not the end
While this setback is significant, Nvidia’s core business continues to thrive. The company reported $44.1 billion in first-quarter revenue, a 69% year-over-year increase, and a 42.6% net profit margin. Nvidia is still a dominant force in next-gen AI chip development, and the company remains focused on future innovations.
The impact of the H20 chip write-off extends beyond Nvidia. Analysts and supply chain experts warn that Nvidia’s manufacturing partners, such as Taiwan-based TSMC and suppliers like Samsung and Micron, could also face repercussions from this inventory write-down.
Hope for the future: A potential path for the H20 chips
Despite the short-term loss, there’s still a glimmer of hope for the H20 chips. Nvidia analyst Harsh Kumar from Piper Sandler is hopeful that the U.S. export ban on H20 chips to China could eventually be lifted, allowing Nvidia to complete the sales or find new customers in China. However, it’s unclear how likely this scenario is, given the ongoing political tensions.
For now, Nvidia’s $4.5 billion write-off serves as a stark reminder of how geopolitical decisions can impact even the most dominant players in the tech industry. But despite the massive loss, Nvidia’s future in AI and next-gen chip development remains bright.
