Nvidia Confronts Supply Crunch Amid Massive Chinese AI Chip Orders

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Nvidia is grappling with a severe supply-demand imbalance as it faces orders from Chinese technology firms for over two million of its H200 AI chips slated for delivery in 2026. The company's current inventory holds only 700,000 units, creating a significant shortfall that management is urgently addressing through production ramp-ups and strategic capital investments.

The scale of the challenge is clear: a gap of approximately 1.3 million H200 chips exists between confirmed Chinese orders and available stock. In response, Nvidia has instructed its manufacturing partner, TSMC, to immediately accelerate production of the H200 series.

This surge in demand is partly facilitated by a recent U.S. government export license, which permits certain shipments to China despite previous restrictions. A standout commitment comes from ByteDance, the parent company of TikTok, which plans to invest roughly $14.3 billion in Nvidia hardware for 2026.

Strategic Capital Deployment to Secure Future Output

Alongside managing the immediate backlog, Nvidia is making substantial strategic expenditures to fortify its technological edge and manufacturing pipeline. The company has entered into a $20 billion licensing agreement with AI chip startup Groq. This deal grants Nvidia non-exclusive licenses to Groq's inference technology and involves the acquisition of a large portion of its engineering team.

A separate $5 billion investment is being directed to Intel. This capital secures Nvidia access to Intel's advanced packaging facilities, which utilize Foveros and EMIB technologies. This move aims to diversify Nvidia's supply chain, a lesson learned from 2025 when CoWoS capacity constraints at TSMC slowed deliveries. The company intends to leverage these new partnerships to reduce its order backlog more rapidly by the first quarter of 2026.

Analyst Outlook and Margin Pressures

Despite a recent pullback in its share price to around $190, analyst sentiment remains largely positive. Bernstein analyst Stacy Rasgon reaffirmed an "Outperform" rating with a $275 price target. Revenue for fiscal 2026 is projected to reach about $212.8 billion, representing a near-doubling from the prior year.

However, rising costs present a headwind. Intense demand for AI components has driven memory module prices from approximately $5.50 to over $20. To protect its margins, Nvidia is expected to increase prices for upcoming consumer GPUs like the RTX 5090 and for its enterprise-grade hardware.

Key Data Points:
* Current Share Price: $186.50 (-0.55%)
* ByteDance 2026 Investment Plan: ~$14.3 billion
* H200 Supply Deficit: ~1.3 million units
* Analyst Price Target: $275 (Bernstein)
* Strategic Expenditures: $20 billion (Groq) + $5 billion (Intel)

The confirmed orders from China provide Nvidia with a stable revenue foundation for the coming quarters. The primary challenge now is the speed at which the company can successfully scale its production capabilities to meet this unprecedented demand.