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

The report called the transition from Nvidia’s GPUs to domestic solutions difficult because differences in hardware and software lead to higher costs and complexity.

Nvidia, which claims the U.S. semiconductor embargo 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) found that Nvidia’s A100 and H100 chips are still the preferred option for centers that require significant computing power, SCMP reports.

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

China’s GPU-based computing power, particularly for AI development, has grown 70% year-on-year. However, according to CAICT’s latest report, many data centers are underutilized due to mismatches between supply and demand and a lack of standardized hardware across different centers.

KeyBanc Analyst John Vinh called Nvidia the favorite, backed by Blackwell, which could potentially contribute over $7 billion in fourth-quarter revenue. According to the analyst, strong Hopper demand could result in sequential sales growth of about 15% in the fourth quarter.

Nvidia boss Jensen Huang recently confirmed huge demand for Nvidia’s Blackwell GPU, production of which is running as planned.

Nvidia shares have gained over 200% in the last 12 months. Investors can invest in the stock through the following the SPDR S&P 500 SPY And the iShares Core S&P 500 ETF IVV.

Price promotion: NVDA shares were up 2.80% at $138.61 at last check on Monday.

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