Cramer sees any Nvidia sales of H200 chips in China as a ‘pure bonus’
Nvidia shares couldn’t do much Tuesday as Wall Street failed to see the big picture of how the company would benefit from finally getting the green light from the U.S. government to sell its second-best chips in China. Following Monday’s shutdown, President Donald Trump said on social media that Nvidia would be allowed to ship H200 chips to “approved customers in China” and that the U.S. government would take a 25% cut. Trump said he notified Chinese President Xi Jinping, who “responded positively.” The post confirmed a media report earlier in the day that an announcement was coming. Shares of Nvidia rose 1.7% on Monday ahead of full details of the policy change coming after the closing bell. The stock fell modestly on Tuesday. The H200s aren’t Nvidia’s cutting-edge chips, but they’re more powerful than the cut-down H20 chips that were made specifically for the Chinese market to comply with export bans that restricted the export of earlier H100s and later H200s. Nvidia reached a deal with the US government in August to provide 15% of H20 sales in China in exchange for export licenses. Turns out no one wants H20s. And Nvidia CEO Jensen Huang said the company assumes zero revenue from China in its future guidance. While the updated regulation allows Chinese buyers to move to a significantly more powerful and efficient system than was previously available, the move still leaves the world’s second-largest economy a step behind the United States and limits it to the Hopper architecture ecosystem. The latest chips Nvidia is shipping are the second generation of the Blackwell architecture, the successor to Hopper, and we expect production of the next-generation Rubin architecture to start ramping up in the back half of 2026. The big question is: Will the H200s be adopted by customers in China and the government there, both of whom have steered clear of H20s? Jim Cramer said the answer is yes, adding that the modest decline in Nvidia shares on Tuesday is not in line with what the company plans to do in China in the long term. “There is a belief that the Chinese, including the government, will encourage writing and coding on Nvidia chips because they are much more powerful and better than what is available domestically,” Jim said at the Morning Meeting for Club members on Tuesday. “If you don’t embrace this, you will be excluded from the world. The Chinese want this very much.” Jim debunked a Financial Times article saying the Chinese government did not want to encourage Nvidia adoption, saying any reports to the contrary were untrue; The idea was to protect China’s chip makers and encourage domestic development to compete with U.S. chip designers, rather than building an AI industry dependent on the ecosystem of the American crown jewel, which forever risks becoming a political football when tensions between the two countries flare. While Beijing may not want to directly embrace the adoption of H200, limiting its use would be self-sabotaging. If there’s one thing to understand over the past year, it’s that the ability to scale computing power is what drives innovation, even as the Chinese DeepSeek AI model throws global AI business into turmoil in early 2025. This puts Beijing in a difficult situation. If it limits the use of H200s, it may accelerate the development of better designed chips domestically, but it will certainly limit its progress in coding and training large language models (LLMs) domestically. On the contrary, we think that the Chinese government will allow the use of H200s while also supporting the development of the domestic chip market; even if this carries the risk of Chinese developers becoming more deeply rooted in the Nvidia ecosystem. NVDA 5Y mountain Nvidia 5 years As investors, we need to consider what the H200 news means for Nvidia’s future earnings per share (EPS). The easing of export restrictions announced Monday could add 60 to 70 cents to EPS estimates based on $25 billion to $30 billion in additional revenue, according to analysts at Wells Fargo. Assuming no multiple expansion, that’s good for $14 to $17 in stock price. “It’s totally a bonus,” Jim said, urging investors to focus on what Jensen said about any guidance that assumes there will be no sales in China. “Pure bonus. Remember, this is definitely not an expensive stock.” Based on Nvidia’s full fiscal year 2027, which corresponds to calendar year 2026, the LSEG consensus forecast calls for EPS of $7.62; This means that at around $185 per share, the stock is trading at a price-to-earnings (P/E) ratio of approximately 24 times forward earnings projections. This is as cheap as it has been at any point in the last decade. Also consider that analysts expect earnings to grow at a compound annual growth rate (CAGR) of 31% over the next three years. This puts the stock’s PEG ratio (P/E divided by growth estimates) below one, which is seen as quite attractive. For comparison, the S&P 500 is trading at about 22 times forward 2026 EPS estimates, with a CARG of about 13.7%. This translates to a PEG of approximately 1.61; This is much less desirable than Nvidia. With Nvidia, investors may be paying a slight P/E premium to the overall market (24x versus 22x), but you get a significantly better earnings growth view than you get with the average stock as measured by the S&P 500 – 13.7% versus a 31% CAGR. Therefore, we see significant value in the stock even without any positive developments from the increase in Chinese business. All in all, Nvidia-China news is welcome. Although critics would like to downplay this, this is a financially positive development from our perspective, as China will put pressure on domestic players to increase the pace of innovation. If China adopts the H200s, great, earnings estimates need to be revised higher and the stock is even cheaper than it looks. If Beijing backs off, shares still look very cheap from our perspective because there’s still plenty of demand outside China to boost Nvidia’s earnings in the coming years. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. 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