Short-seller Culper Research recently declared it is betting against Nvidia, but the market largely ignored the warning for now.
Culper’s argument is straightforward: Nvidia has a big, undisclosed “China problem.” They allege that over 20% of the company's high-powered data center chip revenue in fiscal year 2026 was secretly driven by Chinese demand. They claim this revenue was funneled through unofficial intermediaries in Southeast Asia to get around U.S. export controls.
However, this claim clashes directly with Nvidia’s own public statements. First, the company’s official financial reports show revenue from China (including Hong Kong) actually shrank significantly, falling from over 19% of total sales in fiscal 2025 to just 9% in 2026. Second, Nvidia's management explicitly told investors their financial forecast "assumes no Data Center compute revenue from China," which is the opposite of relying on hidden sales.
So, where does the truth lie? The situation is complicated by U.S. government actions, which are pulling in two different directions. First, the Department of Justice (DOJ) has recently cracked down on several high-profile smuggling rings. Cases involving attempts to illegally ship Nvidia’s powerful H100 and H200 GPUs to China confirm that these gray market channels do exist. This lends some credibility to Culper's claim that diversion is happening.
Second, U.S. policy is not just about bans. The Bureau of Industry and Security (BIS) has shifted its stance, creating a legal pathway for companies like Nvidia to sell certain advanced chips (like the H200) to China under strict licenses. Nvidia has already confirmed it's received some of these licenses. This changes the narrative from a story of illicit sales to one of controlled, legitimate re-engagement.
Ultimately, the debate over Nvidia's China exposure isn't as simple as Culper's report suggests. The real story is a tug-of-war between tightening enforcement on illegal smuggling and the gradual opening of a legal, licensed sales channel. The key risk for investors isn't just a sudden loss of hidden revenue, but how this delicate balance between enforcement and diplomacy evolves in the months ahead.
- Glossary -
- Short Selling: A strategy where an investor borrows a stock and sells it, hoping to buy it back at a lower price to make a profit. It's a bet that the stock's price will fall.
- Data Center Revenue: Income generated from selling high-performance chips (GPUs) and hardware used in large-scale computing facilities for AI, cloud computing, and other intensive tasks.
- Export Controls: Government regulations that restrict the sale and shipment of certain goods and technologies to foreign countries, often for national security reasons.