Nvidia’s H200: A Modestly Improbable Scenario

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At the present moment, which, as anyone who’s considered it for more than three seconds will realize, is fleetingly temporary, Nvidia (NVDA +2.85%) is, by a frankly alarming margin, the most valuable company on the planet. A market capitalization of $4.5 trillion is a number so large it begins to feel less like a financial metric and more like a challenge to see how many zeroes one can comfortably write before experiencing existential dread. Naturally, maintaining this valuation requires a continuous influx of demand for its silicon creations, a demand that, one suspects, is currently being fueled more by optimistic speculation than actual, demonstrable need. (Though what is need, really? A philosophical question for another time, preferably over a very large cup of tea.)

The company’s growth rate, while still impressively robust at over 60%, is, inevitably, slowing down. This is not necessarily a bad thing. Constant exponential growth is, after all, thermodynamically impossible, and attempting to achieve it in the financial markets is rather like trying to build a house out of smoke. Recently, Nvidia has been attempting to ramp up production of its H200 AI chips, specifically for the Chinese market. This, on the surface, appears encouraging. But, as any seasoned observer of the universe will tell you, surfaces are notoriously deceptive.

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Could Nvidia Be Trading Margins for a Temporarily Extended Lifeline?

Last year, the U.S. government, in a move that can only be described as elegantly bureaucratic, permitted the sale of H200 chips to China, but stipulated that 25% of the revenue be returned to the U.S. treasury. This is, essentially, a tax on the future, cleverly disguised as international trade. In the past, Nvidia was allowed to sell an older chip, the H20, without any significant impact on its overall growth. But the H200 is a considerably more advanced piece of technology, and demand, according to CEO Jensen Huang, is “quite high.” (Though quantifying “quite high” is, of course, a matter of subjective interpretation. Is it “quite high” compared to the demand for pet rocks? Or merely “quite high” compared to the demand for slightly less advanced AI chips? The universe remains silent on this point.)

Sources indicate that Nvidia has approached Taiwan Semiconductor Manufacturing to increase production, as the chips are currently in short supply. As of December, Chinese companies had already ordered over 2 million of these chips, while Nvidia had only 700,000 in stock. This creates a situation that is, to put it mildly, mathematically precarious. Focusing on Chinese orders could open up a new avenue for growth, but it might not be as profitable if 25% of the revenue is immediately diverted back to the U.S. government. A large part of why Nvidia doesn’t appear completely absurdly expensive, despite its valuation, is that its earnings have soared. But the expectation of continued growth is a fragile thing, easily shattered by, say, a sudden shift in geopolitical winds or the realization that most of what we call “artificial intelligence” is, in fact, just very clever pattern recognition.

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The stock currently trades at a forward price-to-earnings (P/E) multiple of 24, which is based on analyst expectations. The S&P 500 averages a forward P/E of 22. So, Nvidia isn’t trading that much higher, considering its enormous valuation. However, if signs emerge that its margins are shrinking and its bottom-line growth isn’t as robust as analysts predict, that could, shall we say, mildly inconvenience the share price.

Nvidia’s Vulnerability to the Imponderable Forces of Geopolitics

The current demand for H200 chips may appear strong, but it’s subject to change at a moment’s notice. The Chinese government, understandably, wants to support its domestic chipmaking companies to reduce its reliance on Nvidia. In the past, the U.S. government has banned the sale of customized H20 chips to China, citing security concerns. (The nature of these concerns remains somewhat opaque, but one suspects they involve the possibility of sentient toasters.) The uncertainty surrounding U.S.-China relations, and whether Chinese companies will consistently purchase Nvidia’s chips, introduces a significant risk to the company’s valuation, especially if those sales represent a substantial portion of Nvidia’s guidance. Reports already suggest that China has instructed companies to temporarily halt H200 chip purchases. (This is, of course, perfectly logical. Why buy something today when you might be able to get it cheaper tomorrow, or, failing that, force your own companies to build a perfectly adequate substitute?)

Is Nvidia Still a Reasonably Safe Place to Park Your Money?

Nvidia’s fundamentals look impressive, with the company generating nearly $100 billion in profit over the past year. But investors shouldn’t forget that its recent results, and even future growth, are already factored into its high valuation. This makes the stock a riskier investment, as a great deal will depend on whether the company can not only meet but exceed expectations.

If you’re a long-term investor willing to hold on for several years, Nvidia could still be a good buy. But its returns may not be as spectacular as they have been recently. And with so much bullishness already priced in, a better option might be to consider other growth stocks that aren’t as highly valued and dependent on AI-related growth. (Or, you could simply invest in a good quality umbrella. It’s a far more reliable investment, and you’ll be prepared for any eventuality, including, but not limited to, the sudden and inexplicable rise of sentient toasters.)

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2026-01-15 21:03