A government-backed think tank in China has recommended that the country’s data centers continue to use high-performance chips Nvidia Corp NVDAwarning of the significant costs associated with the transition to domestic alternatives.

The report flagged the transition from Nvidia’s GPUs to domestic solutions as a challenge due to differences in hardware and software that increase costs and complexity.

Nvidia, which insists the US embargo on semiconductors has had no impact, is trading higher on Monday.

Also read: Next-gen Nvidia GPUs could be unveiled at CES 2025 – what you need to know

The China Academy of Information and Communications Technology (CAICT) noted that Nvidia’s A100 and H100 chips are still preferred for centers that require significant computing power, SCMP reports.

The American semiconductor sanctions prompted Nvidia to develop specially tailored A800, H800 and H20 chips. China is a key semiconductor market for Nvidia, and by 2024, 1 million H20 GPUs in China could generate $12 billion in sales.

China’s GPU-based computing power, especially for AI development, has grown 70% year-on-year. However, CAICT’s latest report states that many data centers are underutilized due to the demand-supply mismatch and a lack of standardized hardware across centers.

KeyBanc Analyst John Vinh named Nvidia as the favorite, backed by Blackwell, which could potentially contribute more than $7 billion in revenue in the fourth quarter. According to the analyst, strong demand for Hopper could translate into ~15% sequential revenue growth in the fourth quarter.

Nvidia chief Jensen Huang recently acknowledged huge demand for Nvidia’s Blackwell GPU, production of which is going according to plan.

Nvidia shares are up more than 200% in the past 12 months. Investors can gain exposure through these stocks the SPDR S&P 500 SPY And the iShares Core S&P 500 ETF IVV.

Price promotion: NVDA stock is up 2.80% to $138.61 at last check on Monday.

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