Nvidia CEO Jensen Huang is watching a potential lifeline emerge in China, where the government plans to allow select artificial intelligence companies to purchase the company's advanced H200 chips for the first time in years. The move could mark a dramatic reversal for a market that has become a major headwind for the chip giant, with Huang recently acknowledging that Nvidia's China business has effectively dropped to zero.

Chinese officials have informed Alibaba, ByteDance, and DeepSeek in recent weeks that they may soon receive permission to buy some H200 chips, according to reporting from The Information. This represents a significant shift in Beijing's stance, which has previously withheld approval despite the U.S. government allowing Nvidia to sell the advanced processors to China.

What Happened to Nvidia's Dominance in China?

Just two years ago, Nvidia was the dominant chip supplier in China, generating $25 billion in annual sales from the region, which represented 32 percent of the company's total revenue in 2024. The collapse has been swift and severe. U.S. export controls and Beijing's push for technological self-reliance have essentially eliminated Nvidia's presence in one of the world's largest AI markets.

This absence has weighed heavily on investor sentiment. Nvidia stock is up just 9.6 percent year-to-date, significantly lagging the semiconductor sector benchmark, which has gained 87 percent. The China issue has become what analysts call a major "overhang" on the stock, frustrating investors who see the company's dominance in other markets but cannot ignore the lost revenue opportunity.

How Limited Is the Potential Approval?

The approval Beijing is considering comes with significant constraints. Chinese officials are still determining the exact number of chips to approve, and the total could amount to fewer than 200,000 units, according to The Information. This represents less than half of what the three companies requested earlier this year.

The limited nature of the approval reflects Beijing's competing priorities. While Chinese tech companies face a growing computing capacity crunch that threatens their ability to develop and deploy advanced AI systems, the government remains committed to nurturing domestic chip suppliers and reducing dependence on foreign technology.

Steps Investors Are Taking to Reassess Nvidia's Position

• Valuation Analysis: Bank of America analysts argue that the market is underestimating Nvidia's dominant position and its capacity to absorb pressures such as high memory prices and competition from custom chips developed by major tech companies.
• Sentiment Monitoring: Retail investor sentiment on Stocktwits shifted to "bullish" from "neutral" following the China news, with high message volume indicating renewed interest in the stock.
• Price Target Updates: Bank of America set a price target of $350, implying 78 percent upside from the stock's closing price on the day of the report, while the average analyst price target across 61 analysts stands at $301.62, implying 48 percent upside.

Bank of America's analysis suggests that at Nvidia's current valuation, investors might already be implicitly discounting an unjustified 30 to 35 percent headwind to earnings estimates for 2027 and 2028. The bank reiterated its "Buy" rating and called the current price "an enhanced Buy opportunity for a unique, durable growth franchise now trading at a 7-year low 18x forward price-to-earnings ratio".

Why Does This Matter Beyond Stock Price?

The potential China approval carries broader implications for the global AI race. Chinese companies like Alibaba, ByteDance, and DeepSeek have been scrambling to develop competitive AI systems without access to Nvidia's most advanced chips. A limited supply of H200 processors could help these companies accelerate their AI capabilities, though the constraint on total units suggests Beijing wants to balance supporting domestic innovation with protecting its own chip industry.

For Huang and Nvidia, the approval would represent validation that the company's technology remains indispensable, even in a geopolitically fractured world. However, the limited scale of the potential deal underscores the reality that Nvidia's China business may never return to its pre-2024 levels, at least not in the near term. The company must now navigate a future where it operates in a bifurcated market, with full access to Western customers but constrained access to one of the world's largest AI ecosystems.

Nvidia shares jumped 3.7 percent on the day the China news broke, extending a winning streak to three consecutive sessions. The rally reflects investor optimism that a thaw in U.S.-China chip relations could ease one of the biggest uncertainties hanging over the semiconductor sector.