Nvidia Earnings in Focus as US Export Curbs Hit China Sales

Nvidia is expected to reveal the financial toll of US export restrictions on its China business when it reports earnings on Wednesday, with investors closely watching for clarity on the impact.

Credit: NVIDIA

The company previously said it would take a USD 5.5 billion charge due to the US government's decision to block exports of its H20 chip to China. The H20 was the only AI chip Nvidia was authorised to sell in the country, which accounted for 13% of its revenue last year.

Chief Executive Officer Jensen Huang said Nvidia had walked away from USD 15 billion in potential sales in China following the curbs. He estimated the AI chip market in China could be worth USD 50 billion next year.

Analysts from Wedbush said the key question is whether Nvidia can grow sales enough to offset the loss of its China business.

Nvidia is reportedly planning to launch a new AI chip for China based on its latest Blackwell architecture, but the uncertainty has weighed on its stock. Shares are down 2% this year, compared to a nearly threefold increase last year.

D.A. Davidson analyst Gil Luria said China will likely be the biggest variable in Nvidia’s quarterly results.

Nvidia is forecast to report a 66.2% year-on-year increase in first-quarter revenue to USD 43.28 billion, according to LSEG data.

Susquehanna analysts estimated the export restrictions affected the final three weeks of the April quarter, costing Nvidia about USD 1 billion in sales. They projected lost revenue could reach up to USD 4.5 billion per quarter for the rest of the year.

Wedbush analysts estimated a quarterly revenue hit of USD 3 billion to USD 4 billion.

The company’s adjusted gross margin is expected to fall by more than 11 percentage points to 67.7%. Wedbush said write-downs related to H20 shipments could reduce gross margin by as much as 12.5%.

Huang recently criticised the US semiconductor curbs, calling them “a failure” and saying they have accelerated development of domestic chips by Chinese firms such as Huawei.

While the Biden administration is maintaining some restrictions, it is easing others under a rule known as the AI diffusion rule. This could allow Nvidia to expand into new markets, including the Middle East.

Nvidia has agreed to sell hundreds of thousands of AI chips to Saudi Arabia, including 18,000 Blackwell chips to a startup backed by the country’s sovereign wealth fund.

Despite concerns that AI investment by major cloud providers was slowing, Nvidia has gained support from spending commitments by companies such as Alphabet’s Google.

However, analysts say Nvidia’s streak of large earnings beats may be ending. In its last fiscal year, the company exceeded Wall Street’s revenue estimates by an average of 4.9% per quarter, compared to 12.5% the year before.

Ivana Delevska, chief investment officer of Spear Invest, said investor expectations are not high heading into the earnings report.

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• Nvidia expects USD 5.5 billion charge from US chip export curbs

• China accounted for 13% of Nvidia’s revenue last year

• Revenue forecast to rise 66.2% to USD 43.28 billion in Q1

Source: REUTERS