Cramer sees any Nvidia sales of H200s in China as a 'pure bonus,' says the stock should be higher

CNBC Finance

6 min read

Nvidia shares were not doing much on Tuesday as Wall Street failed to see the bigger picture of how the company can benefit from finally getting the green light from the U.S. government to sell its second-best chips in China. After Monday's close, President Donald Trump said on social media that Nvidia will be allowed to ship H200 chips to "approved customers in China," and the U.S. government would take a 25% cut. Trump said he informed Chinese President Xi Jinping , who "responded positively." The post confirmed a media report earlier in the day that an announcement was coming. Shares of Nvidia rose 1.7% on Monday ahead of the full details of the policy change, which came after the closing bell. The stock was modestly lower on Tuesday. The H200s are not Nvidia's state-of-the-art chips, but they are more powerful than the throttled-down H20 chips, which were made specifically for the Chinese market to comply with export bans that previously restricted the export of H100s and later the H200s. Nvidia reached a deal in August with the U.S. government to provide 15% of H20 sales in China in exchange for export licenses. It turns out nobody wanted the H20s. And, Nvidia CEO Jensen Huang has said the company's future guidance assumes zero revenue from China. While the updated regulation does allow Chinese buyers to upgrade to a system significantly more powerful and efficient than previously available, the move still keeps the world's second-largest economy a step behind the U.S., limiting it to the Hopper architecture ecosystem. The latest chips shipping from Nvidia are the second generation of the Blackwell architecture, the successor to Hopper, and we expect to see production of the next-generation Rubin architecture start to ramp in the back half of 2026. The big question is: Will the H200s be embraced by customers in China, and the government there, both of whom shunned the H20s? Jim Cramer said the answer is yes, adding that Tuesday's modest drop in Nvidia stock is not in keeping with what the company plans to do in China over the long term. "There is a belief that the Chinese, including the government, are going to encourage writing, coding on Nvidia's chips because they are far stronger and better" than what's available to them domestically, Jim explained during Tuesday's Morning Meeting for Club members. "You get shut out of the world if you don't adopt it. The Chinese want this badly." Jim said that any reports to the contrary are not true, refuting a Financial Times article saying the Chinese government does not want to encourage Nvidia adoption â the idea being to protect China's chip manufacturers and foster domestic development to compete with U.S. chip designers, rather than build an AI industry dependent on the ecosystem of an American crown jewel, which is forever at risk of becoming a political football whenever tensions between the two nations flare up. While Beijing may not look to outright embrace adoption of the H200, limiting its usage amounts to self-sabotage. If there's anything to understand over the past year, even with the breakthrough of the Chinese DeepSeek artificial intelligence model that tossed the global AI trade into turmoil in early 2025, it's that the ability to scale computing power is what drives innovation. That puts Beijing in a bind. If it limits the usage of H200s, it might be able to accelerate the development of better domestically designed chips, but it will certainly be limiting its own progress in domestically coding and training large language models (LLMs). Rather, we think the Chinese government is likely to allow the usage of H200s, while also supporting the advancement of its domestic chip market, even if that does risk Chinese developers becoming more deeply ingrained in the Nvidia ecosystem. NVDA 5Y mountain Nvidia 5 years As investors, we need to consider what the H200 news means for Nvidia's future earnings per share (EPS). According to analysts at Wells Fargo, the easing of export restrictions announced Monday could add 60 to 70 cents to EPS estimates based on additional revenue of $25 billion to $30 billion. That's good for $14 to $17 in the stock price, assuming no multiple expansion. "Pure bonus," Jim said, urging investors to focus on what Jensen said about all guidance assumes no China sales. "Pure bonus. Remember, this is not an expensive stock by any means." Based on Nvidia's full fiscal year 2027, corresponding to calendar year 2026, the LSEG consensus estimate calls EPS of $7.62, which means the stock at around $185 per share trades at a price-to-earnings (P/E) multiple of about 24 times forward earnings projections. That's as cheap as it has been at any point over the past decade. Also consider that analysts expect earnings to grow at a compound annual growth rate (CAGR) of 31% over the next three years. That puts the stock's PEG ratio (P/E divided by growth estimates) at below one, which is considered highly attractive. For comparison, the S & P 500 trades at roughly 22 times forward calendar year 2026 EPS estimates, with a CARG of about 13.7%. That translates to a PEG of about 1.61, much less desirable than Nvidia. With Nvidia, investors may be paying a slight P/E premium to the overall market â 24 times versus 22 times â but you're getting a significantly better earnings growth outlook than you do with the average stock as measured by the S & P 500 â 31% CAGR versus 13.7. So, even without upside from an increase in China business, we see significant value in the stock. Bottom line Ultimately, the Nvidia-China news is welcome. While critics may want to downplay it, on the view that China will look to pressure domestic players to increase the pace of innovation, it's all financial upside as far as we're concerned. If China does adopt the H200s, great, earnings estimates need to be revised higher, and the stock is even cheaper than it appears. If Beijing does push back, well, shares still look too cheap from our perspective because there is still plenty of demand outside of China to drive earnings growth at Nvidia in the years to come. (Jim Cramer's Charitable Trust is long NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Cramer sees any Nvidia sales of H200s in China as a 'pure bonus,' says the stock should be higher

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