In China, there is a rising demand for the repair of Nvidia’s high-end AI chips, like the H100 and A100. Despite a U.S. ban on their export, tech companies in Shenzhen are fixing hundreds of these GPUs each month, including those that were never legally sold in China. This increase in unauthorized repairs hints at substantial smuggling activities, with reports indicating that some of the buyers are from the Chinese government and military. The U.S. imposed these export bans to limit China’s technological development, leading to bipartisan efforts to improve tracking.

Nvidia’s Dominance Despite Trade Barriers

Nvidia can’t assist with these restricted products in China, so local repair shops are stepping in and charging as much as $2,800 for repairs. While there are legal options like the H20, Chinese companies still prefer the banned chips for AI training. Demand is also starting to shift toward Nvidia’s high-end B200 models. The ongoing demand for high-end GPUs in China highlights Nvidia’s clear technological lead, contributing to a stock price surge of over 150% this year. This underground market reflects a demand so strong that it persists despite international restrictions, reinforcing our belief that Nvidia has a robust competitive edge that is hard to penetrate. However, the recent bipartisan efforts in Washington to tighten export controls introduce regulatory risks. History shows that announcements of stricter regulations, including those made in October 2023, often lead to immediate but temporary drops in stock prices. We expect that any new legislative actions will cause similar short-term fluctuations as the market adjusts to this geopolitical risk.

Strategies for Market Fluctuations

This situation creates an opportunity for volatility-based trading strategies. We see it as a prime example for employing techniques like straddles or strangles, which can profit from significant price movements in either direction. The current high implied volatility in options reflects that the market anticipates big changes in the near future. Given the company’s recent earnings report showing record data center revenue of $22.6 billion, the overall trend remains strongly positive. For investors with a bullish outlook, we recommend bull call spreads to benefit from potential gains while managing risk in case of sudden regulatory changes. The reported underperformance of the compliant H20 chip in China further demonstrates that customers are willing to pay more for superior performance, legally or not. This suggests the lasting value of the product ecosystem, which is a positive sign for the long term. Even with some sales restrictions, the brand’s perceived value continues to grow. Create your live VT Markets account and start trading now.

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