Seen above is NVIDIA CEO Jensen Huang's signature on Samsung Electronics' HBM3E 12H chip at a Samsung Electronics booth at the GTC 2024 in San Jose in the U.S. state of California. This photo was posted on social media of Han Jin-man, executive vice president of Samsung Electronics Semiconductor Division America. Captured from Han's social media

Samsung Electronics' fourth-generation high bandwidth memory 3 (HBM3) chips have been cleared by NVIDIA for use in NVIDA's China-bound processors, marking the first case of Samsung supplying its HBM chips to the artificial intelligence (AI) processor giant, according to a Wednesday report.

The report that Samsung neither confirmed nor denied also said Samsung's fifth-generation HBM3E chips have yet to meet NVIDIA standards and that tests are continuing, presenting a mixed outlook on the chipmaker's efforts to keep up with the fast-evolving HBM market.

Citing multiple unnamed sources, Reuters reported that Samsung's HBM3 chips will, for now, only be used in a less sophisticated Nvidia graphics processing unit (GPU), the H20, and Samsung could begin supplying HBM3 as early as August.

Samsung Electronics' HBM3E 12H / Courtesy of Samsung Electronics

The H20 has been developed for the Chinese market, and its computing power is capped in compliance with U.S. export controls. HBM, which vertically stacks chips to save space and power consumption, is viewed as a key component of graphics processing units for powering generative AI.

Samsung did not confirm or deny the report, with an official noting that "efforts are underway with partner companies to supply HBM chips."

Samsung has been striving to supply HBM chips to NVIDIA, which holds a dominant position in GPUs for AI, in order to achieve sustainable improvements in its earnings and challenge SK hynix's leadership in the HBM market.

SK hynix is the main supplier of HBM chips to NVIDIA, supplying HBM3 since June 2022. On March 19, SK hynix announced that it began supplying HBM3E to "a client," which was assumed to be NVIDIA. Along with SK hynix, Micron of the U.S. is also supplying HBM chips to NVIDIA.

In comparison, Samsung has been struggling to compete to win NVIDIA's order.

In February, the company announced that it has developed the industry's first 36-gigabyte 12-layer HBM3E and plans to mass produce those chips in the second half of this year, but reports have alleged that Samsung's supplying efforts are being delayed due to heat and power consumption issues. NVIDIA CEO Jensen Huang said earlier this month that Samsung has not failed any qualification tests.

NVIDIA's possible clearance of Samsung's fourth-generation chip appears to be a boost for the company's outlook in the HBM market and its earnings.

In the DRAM market, HBM accounted for 8.4 percent last year, but its shares are expected to jump to 20.1 percent this year. Samsung plans to expand its HBM production capacity by 2.9 times compared to that of last year, in order to expand its market share. Last year, SK hynix was leading the global HBM market with a 53 percent share, followed by Samsung with 38 percent and Micron with 9 percent, according to market tracker TrendForce.

Analysts have assumed that NVIDIA may post approximately $12 billion in revenue by selling more than 1 million H20 processors to China this year. Samsung has already predicted that its second-quarter operating profit will likely be 10.4 trillion won ($7.54 billion), a jump of about 1,452 percent from 670 billion won a year ago.

For NVIDIA, Samsung, which has the world's largest chip manufacturing capacity, is also necessary to meet the soaring demand for its chips and to diversify its supply sources.

Casting uncertainties are new U.S. regulations. U.S. media outlets reported earlier this week that the U.S. government may introduce new trade restrictions that could prevent NVIDIA from selling its H20 processors while NVIDIA is preparing another China-oriented processor, the B20.

Though it will likely be the first instance of Samsung supplying its HBM chips for NVIDIA, the market appeared to be accepting this issue as a disappointment due to hyped expectations that Samsung has already passed HBM3E tests and will likely begin mass production soon.

Samsung Electronics closed at 82,000 won, down 2.26 percent from a day earlier.

Industry officials assume that further details of Samsung's chip supply for NVIDIA will likely be available during the company's conference call slated for July 31.