Nvidia (NVDA) spent years dealing with one of the stranger problems in technology: customers want more of its chips than it can make.
China has just exacerbated the issue.
ByteDance, Alibaba (BABA) and Tencent have placed orders for more than 3 million Nvidia RTX PRO 5500 graphics cards, carrying a combined list-price value above $35 billion, according to Reuters.
However, Nvidia may not be able to do anything like that.
Chinese orders have exceeded 6 million cards, and Nvidia expects to produce only 3 million RTX PRO 5500 units in 2027. Reuters reported that some customers will receive only 5%–10% of their requests.
This does not guarantee Nvidia $35 billion in revenue.
It could disclose something more significant.
China’s largest IT businesses continue to line up for Nvidia gear, even if it isn’t the best, despite years of U.S. regulations intended to restrict China’s access to cutting-edge artificial intelligence processors.
Investors may discover that Nvidia’s China issue is more about determining which customers it can truly serve than about attracting new ones.
China still wants Nvidia chips
Nvidia’s flagship AI processor is not the RTX PRO 5500.
AI inference, or the work a trained AI model does when it reacts to a prompt, creates content, or finishes a job, may be handled by this powerful workstation graphics processing unit.
Because of its capabilities, it is very helpful in China.
U.S. restrictions prevent Nvidia from freely selling some of its most advanced products there. The B300 cannot currently be sold to Chinese customers, while H200 shipments require individual U.S. government approval, Reuters reported.
As a result, Chinese IT firms are vying for access to Nvidia hardware.
They seem to want a lot of it, too.
Together, ByteDance, Alibaba, and Tencent have asked for almost 3 million RTX PRO 5500 cards. China’s overall demand exceeds Nvidia’s projected global output for the next year by more than two times.
Customers should get samples in December, and larger shipments will start in early 2027.
The figures challenge the conventional narrative about China.
Clearly, export limitations have made it more difficult for Nvidia to do business there. However, they haven’t eliminated the need for Nvidia in China.
Rather, it seems that consumers are prepared to go down on Nvidia’s product stack in order to get the remaining processing power.
China wants millions more Nvidia chips than Nvidia plans to make
Nadja Wohlleben / Getty Images
Nvidia can’t make every chip customers want
Strong demand does not automatically mean Nvidia should make millions more RTX PRO 5500 cards.
There is value in manufacturing capacity.
At the same time, Nvidia is expanding its more advanced AI systems for clients like Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and artificial intelligence firms constructing ever-larger data centers.
As a result, there is a trade-off.
More Nvidia:
- Nvidia stock flashes massive signal as Wall Street leans in
- Nvidia’s AI boom revives a Warren Buffett warning for investors
- Nvidia puts $500 billion on the table, challenges banking as we know it
The scale of Nvidia’s existing business makes the decision easier to understand.
Nvidia generated $89 billion in Data Center revenue in its fiscal second quarter, an increase of 117% from a year earlier. It forecast roughly $108 billion in total revenue for its fiscal third quarter.
One aspect of this approach is particularly intriguing.
According to Nvidia, their prediction does not account for income from data center computing in China.
Because of this, the most recent Chinese demand may be more significant than the $35 billion headline implies.
These Chinese sales are not necessary for Nvidia to meet its current projections.
China may generate more income if it can meet some of the increased demand without compromising the production of more lucrative goods abroad.
However, investors should understand this difference.
A shipment is not the same as an order request. Revenue is not always realized for a shipment. Furthermore, it doesn’t seem feasible that Nvidia will fulfill every single request.
The stronger indication is the demand itself.
Nvidia’s China problem comes with a catch
Nvidia cannot expect Chinese businesses to wait indefinitely.
Every chip it is unable to sell offers local rivals another chance.
Huawei is one of the businesses attempting to lessen China’s reliance on American semiconductor technology as a result of U.S. limitations.
The most recent orders are so strange because of this.
Since the RTX PRO 5500 cards are Nvidia’s most cutting-edge technology, ByteDance, Alibaba, and Tencent are not asking for millions of them.
Despite the concessions, they still want them.
This implies that Nvidia still has a client base that firmly favors its hardware and software ecosystem, even in situations where access to its top products is limited, something that rivals have found difficult to match.
Although the $35 billion figure may draw attention, it does not represent a $35 billion sales projection.
Six million could be a more telling figure.
Well over 6 million RTX PRO 5500 cards are apparently wanted by Chinese consumers, although Nvidia anticipates producing around half of that quantity for the global market next year.
That is what most chipmakers would refer to as unusual demand.
It adds another layer of complexity for Nvidia.
Washington continues to demand more chips from Nvidia than it intends to manufacture in one of the places where it has made it most difficult for the company to sell its technology.
China’s desire for Nvidia is now clear.
Related: Nvidia dodged the AI selloff, and Jensen Huang has a theory why
