Price increases passed on to China
Nvidia is hiking the price of its H20 AI chips by 18 per cent to bankroll a Trump-approved shake-down of its Chinese business.
For those who came in late, the US government is demanding 15 per cent of all H20 revenue from mainland sales as the price of doing business, and Nvidia has made it clear who will be footing the bill.
The chipmaker, keen to keep its gross profit margin intact, has responded by slapping a chunky price increase on its customers in the mainland market.
According to Deepwater Asset Management co-founder Gene Munster: “The agreement between Nvidia CEO Jensen Huang and US President Trump has opened a new model of pay-to-play in the Chinese mainland market.”
Nvidia has no intention of absorbing the extra cost and is passing it on wholesale to Chinese firms buying AI kit.
The 18 per cent price hike is more than the 15 per cent revenue skim, suggesting Nvidia isn’t just offsetting the tax but tacking on a bit of margin padding while it’s at it. Worse still, the US government’s share applies to the final jacked-up price, making the maths even more favourable for Washington.
Wall Street had been expecting Nvidia’s gross profit margin to hit 71 per cent next year. With the price hike in place and H20 accounting for around 15 per cent of Nvidia’s total revenue, that margin is now expected to dip slightly to 69.3 per cent. But Munster says no one will care, as long as the gross profit in dollar terms keeps growing.
For AI server manufacturers like Inventec and MiTAC, the news is far less rosy. Inventec, which assembles and integrates servers for Baidu, Alibaba, Tencent and ByteDance, could see squeezed margins and weakened bargaining power. The chip cost increases might make some customers think twice before signing new deals.