Key Takeaways
- NVIDIA has reportedly told cloud clients to sell at least 51% of their services to non-Chinese companies, which caps Chinese business at 49%.
- The cap narrows the overseas rental route that Chinese firms have used to reach advanced NVIDIA chips, and it’s a smart trade of a little demand for less export risk.
- The rule only covers new contracts. The main risk falls on overseas clouds, and Super Micro’s record quarter on Nov. 3 shows no sign of a slowdown yet.
- NVIDIA trades at 17x forward earnings, near its lowest in three years, ahead of its third-quarter results on Nov. 17.
NVIDIA (NVDA) is closing a door that Chinese AI companies have been walking through all year.
The chipmaker has told its data center partners that they must now sell at least 51% of their cloud services to non-Chinese companies, the Financial Times reported on Nov. 3, citing five people with knowledge of the matter. That caps Chinese customers at 49% of the business.
This is the latest step in a crackdown on how NVIDIA’s chips reach China, and Super Micro Computer (SMCI) is already part of that story. In March, prosecutors charged its co-founder, Wally Liaw, and two others with allegedly routing about $2.5 billion of servers built with NVIDIA chips to China through a front company in Southeast Asia.
The 49% Rule
The rule reportedly works like this:
- Before this, NVIDIA had no such cap.
- NVIDIA’s sales force and regional teams passed it on verbally.
- It covers NVIDIA’s clients worldwide, not just those in Asia.
- It only applies to new contracts. Existing leases stand.
Closing the Rental Loophole
Earlier this year, NVIDIA set up a “white list” of companies that passed tougher compliance checks. That more than halved the number of Asian customers allowed to buy its AI chips. Less smuggling followed, but more Chinese tech groups started leasing computing power from cloud providers outside China.
On TBPN’s Oct. 29 episode, the hosts were discussing allegations of a Chinese effort to get access to advanced AI chips. Co-host Jordi Hays summed up why the location matters: “the more chips that get to Malaysia, the more inference that will be available for China, essentially.”
And Chinese buyers are paying up for that capacity. A rack of NVIDIA’s B300 chips sells for about $600,000 internationally. In October, one reportedly fetched $2.8 million in China, where US export controls bar its sale.
Which, yikes.
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49% Is Still a Lot of China
The cap leaves plenty of room. A cloud can still sell nearly half its capacity to Chinese customers, and leases already signed don’t change. So I don’t expect a big hit to NVIDIA’s sales any time soon.
Plus, on its Aug. 26 call, management called its outlook for about 70% revenue growth in fiscal 2028 supply-constrained. When demand runs ahead of supply, NVIDIA doesn’t need Chinese renters: a chip one of them can’t get goes to someone else. NVIDIA’s third-quarter outlook already assumes no data center compute sales in China. Revenue from customers headquartered in China and Hong Kong fell to $19.7 billion in the year ended January 2026, from $25.0 billion the year before.
Analysts expect revenue to keep climbing fast, from $216 billion in fiscal 2026 to $692 billion in fiscal 2028:
I don’t see a cap on new rental contracts moving those estimates much, since they already rest on how many chips NVIDIA can get made.
The clouds take the hit instead. One Singapore-based cloud group reportedly said it’s “difficult to find enough non-Chinese clients outside the US.” Clouds like that are part of NVIDIA’s fastest-growing customer group: AI clouds, industrial and enterprise revenue rose 138% to $40.3 billion in the quarter ended July 26. If those clouds have to shrink, NVIDIA will feel it.
Super Micro’s numbers don’t show that yet. On Nov. 3, it reported revenue of $19.9 billion for the quarter ended Sept. 30, above both the $18.5 billion to $19.5 billion it flagged on Oct. 20 and its original $14.5 billion to $15.5 billion guidance. It also raised its fiscal 2027 revenue outlook to $72 billion to $82 billion, from $65 billion to $72 billion. But the rule only touches new contracts, so the real test is whether that demand holds once Super Micro’s overseas cloud customers have to find non-Chinese renters.
Less Risk for NVIDIA Stock at 17x
At the Nov. 2 close, NVIDIA traded at 16.7x forward earnings. That’s the lowest of the last three years and well under its 30x average, and the stock’s 2.3% gain on Nov. 3 only lifted it to 17.1x:
Frankly, this looks like a smart trade to me. NVIDIA gives up a slice of Chinese demand it probably didn’t need, and it takes some export risk off a stock that’s already priced near a three-year low.
Of course, the rule was passed on verbally, so we don’t know yet how hard NVIDIA’s sales teams will enforce it. The next read comes with NVIDIA’s third-quarter results on Nov. 17, against guidance of $108.0 billion, plus or minus 2%.
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