Nvidia is set to release a downgraded version of its H20 AI chip for China in the coming two months, in response to U.S. export restrictions on the original version, according to three sources familiar with the matter. The company has informed major Chinese clients, including prominent cloud service providers, that the modified H20 will be available in July.

This move marks Nvidia's effort to retain its foothold in one of its key markets amid increasing U.S. restrictions on China's access to advanced semiconductor technology. The original H20, Nvidia's most powerful AI chip approved for sale in China, was blocked after U.S. officials informed the company last month that it would need an export license.

Nvidia has introduced new technical limits for the updated chip, which will lead to significant downgrades from the original, including a major reduction in memory capacity, according to one source. Another source mentioned that customers might adjust the chip's performance by modifying its module configuration. Nvidia declined to comment, and the U.S. Commerce Department did not respond immediately to a request for comment. China contributed $17 billion, or 13% of Nvidia's total sales, in the fiscal year ending January 26.

Nvidia CEO Jensen Huang visited Beijing last month, shortly after the U.S. introduced new export license requirements for the H20 chip, emphasizing the importance of the Chinese market to the company. The U.S. has restricted the export of Nvidia's most advanced chips to China since 2022, citing concerns over their potential military uses. The H20 was launched after the U.S. imposed stricter export controls in October 2023. Chinese tech giants like Tencent, Alibaba, and ByteDance increased their orders for the H20 chip earlier this year as demand for cost-effective AI models surged. Nvidia had received $18 billion in H20 orders by January, according to a previous Reuters report.