The Demand for Nvidia Chips in China Remains Strong Despite U.S. Restrictions
The artificial intelligence (AI) technology used in products like ChatGPT and autonomous driving systems has created a significant demand for Nvidia’s chips in China. However, recent news about the U.S. banning the sale of high-end semiconductors to China has caused analysts to lower their price targets for Nvidia. China is a crucial market for Nvidia, accounting for at least 20% of its big data center business and dominating the electric car industry where Nvidia sells chips for assisted and fully autonomous driving.
Impact on Auto Chips
While the U.S. restrictions may affect other high-end semiconductors, Nomura analysts believe that Nvidia’s Drive AGX Orin chip used in cars is not impacted by the new regulations. The chip meets some technical specifications but falls short of a key performance metric and is not used in data centers. Therefore, the Orin X chips remain safe from the ban, indicating that other existing auto chips should also be unaffected.
Alternatives to Nvidia’s Products
Despite Nvidia’s dominance, other companies are emerging with alternative solutions for AI computing. Kneron, a U.S.-based company, uses a neuroscience-based approach instead of graphics processing like Nvidia. Kneron’s CEO claims that their revenue is forecasted to grow significantly in the fourth quarter, and they are working with Foxconn to develop automotive AI. They recently unveiled their KL730 chip, which offers superior energy efficiency and is being shipped to various automakers.
The Cost of AI Models and Homegrown Chip Companies
Testing AI models requires substantial processing power, which can be expensive due to chip shortages. HSBC analysts note that global cloud players charge high fees for using NVIDIA’s A100 80G chip. Additionally, while Nvidia may be exempt from the restrictions on automotive chips in China for now, future advanced chips may require a license from the U.S. government. Chinese companies are already developing homegrown alternatives, such as Horizon Robotics’ chip used by Inceptio, an autonomous truck driving company.
Automation Solutions in China
Analysts are closely watching companies like Inovance, the largest domestic factory automation solution supplier in China. Both Nomura and HSBC analysts have raised their price targets for Inovance due to its solid growth in the new energy vehicle and automation businesses. Inovance has also gained market share in motor controllers and powertrain systems in China, driven by wallet share expansion in key customers like GAC.
Hot Take: The Future of Nvidia Chips in China
Despite the recent U.S. restrictions on high-end semiconductors, the demand for Nvidia chips remains strong in China, particularly in the AI and electric car markets. While some analysts have lowered their price targets, Nomura believes that Nvidia’s auto chips are not significantly impacted by the new regulations. However, Chinese companies are actively developing alternative solutions and homegrown chips to reduce reliance on foreign suppliers. As chip shortages continue and AI models require more processing power, the cost of using advanced chips may rise. Nonetheless, Nvidia’s position as a leading chip provider in China is expected to face increasing competition as local companies strive for self-sufficiency.
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