NVIDIA encounters robust demand for cloud AI but encounters obstacles in China, with projections indicating that high-end AI server shipments will be less than 4% by 2024.

NVIDIA's latest financial reports for FY3Q24 show that its data center segment has achieved record-high revenue. This growth is driven by the increasing demand for AI servers from major North American cloud service providers (CSPs). However, TrendForce highlights that recent US government sanctions targeting China have had an impact on NVIDIA's business in the region. Despite strong shipments of NVIDIA's high-end GPUs and the introduction of compliant products like the H20, L20, and L2, Chinese cloud operators are still in the testing phase. As a result, significant revenue contributions to NVIDIA in Q4 are unlikely. Gradual increases in shipments are expected from the first quarter of 2024.

The US ban continues to affect China's foundry market, potentially causing Chinese CSPs' high-end AI server shipments to drop below 4% next year. TrendForce reports that North American CSPs such as Microsoft, Google, and AWS will remain key drivers of high-end AI servers, including those with NVIDIA, AMD, or other high-end ASIC chips, from 2023 to 2024. Their estimated shipments for 2024 are expected to be 24%, 18.6%, and 16.3%, respectively. Chinese CSPs like ByteDance, Baidu, Alibaba, and Tencent (BBAT) are projected to have a combined shipment share of approximately 6.3% in 2023. However, this could decrease to less than 4% in 2024 due to the current and potential future impacts of the ban. In response, China plans to expand its investment in proprietary ASICs and develop general-purpose AI chips to compensate for the limited demand for high-end AI chips.

Facing the risk of expanded restrictions resulting from the US ban, TrendForce predicts that Chinese companies will continue to purchase existing AI chips in the short term. NVIDIA's GPU AI accelerator chips, including existing A800 or H800 inventories and new models like H20, L20, and L2, remain a top priority for Chinese companies following the ban. In the long term, Chinese CSPs are expected to accelerate their efforts, with Alibaba's T-Head and Baidu being particularly active in this area. They will rely on foundries like TSMC and Samsung for production.

Additionally, major Chinese AI firms like Huawei and Biren will continue to develop general-purpose AI chips to offer AI solutions for local businesses. These companies also aim to establish a domestic AI server ecosystem in China. TrendForce recognizes that the support of the Chinese government through localized projects, such as those involving Chinese telecom operators, will be crucial for their success in this endeavor.

One significant challenge in developing high-end chips in China is the limited access to advanced manufacturing technology. This is especially true for Huawei, which remains on the US Entity List and relies on domestic foundries like SMIC for production. Despite SMIC's advancements, it faces similar issues caused by the US ban, including difficulties in obtaining key advanced manufacturing equipment and potential yield issues. TrendForce suggests that China may find opportunities in the mid to low-range edge AI server market as a way to overcome these limitations. These servers, which have lower AI computational demands, cater to applications like commercial ChatBOTs, video streaming, internet platforms, and automotive assistance systems. They may not be fully covered by US restrictions, presenting a potential growth direction for Chinese firms in the AI market.