Nvidia's stock rises unexpectedly, surfacing resilience against anticipated losses from China export restrictions.
Nvidia surpasses sales projections in the first quarter as customers stockpiled its AI chips, anticipating fresh US export curbs on China. However, the same restrictions have caused an estimated $8 billion reduction in the company's sales for the current fiscal second quarter, resulting in a forecast below Wall Street expectations.
Shares of Nvidia, the world's most valuable semiconductor firm, rose 5% in extended trading after the news, with investors taking stock of the situation. The increase was attributed to the fact that the impact of the current fiscal second quarter restrictions was not as severe as feared, and there was also optimistic talk about demand for Nvidia's new Blackwell chips from clients such as Microsoft.
Throughout the year, the stock has been relatively flat compared to a 2024 surge when the shares nearly tripled in value. The company must now navigate trade restrictions on what it can sell and a maturing AI data center market.
US efforts to hinder China's access to advanced US technology have resulted in stricter restrictions on the export of Nvidia's AI chips, which has impeded the company's access to a significant semiconductor market.
During a conference call with analysts, CEO Jensen Huang expressed concern about US-China policy, stating that Nvidia could be cut off from China's massive AI developer base, and that China's chip industry was becoming increasingly competitive and closing in on US dominance. However, Huang also praised President Trump's recent move to rescind the so-called AI diffusion rule that would have regulated the global flow of US AI chips.
Regarding the Hopper chips, Huang revealed they could no longer be modified for the Chinese market, but was tight-lipped about the Blackwell chips. Reuters has previously reported that Nvidia is preparing a Blackwell variant for the Chinese market.
In lieu of lost Chinese revenue, a series of new deals with Middle Eastern companies may offer fresh avenues for growth. This includes the initial phases of a 10-square-mile data center site in the United Arab Emirates that could eventually utilize 5 gigawatts' worth of AI infrastructure. Similar deals have also been announced in Saudi Arabia and Taiwan.
Nvidia Chief Financial Officer Colette Kress stated that the company has a line of sight to projects requiring tens of gigawatts of Nvidia AI infrastructure in the near future. However, restrictions on China exports will undoubtedly hurt the company in the short term, as Kress revealed that data center revenue in China declined.
Restrictions on the sale of Nvidia's H20 chips to China have previously resulted in a $5.5 billion charge disclosed in April. Huang had initially estimated the revenue impact related to the restrictions at about $15 billion. Nvidia said the actual first-quarter charge due to the H20 restrictions was $1 billion less than expected, as it was able to reuse some materials.
Gil Luria, an analyst with D.A. Davidson, said that the overall impact of the H20 restrictions was less severe than originally feared. "There was a removal of some China revenue from the July quarter guides, but there was also China revenue that was pulled into the first quarter. Chinese buyers were stocking up on H20 ahead of the restrictions, which is what propped up the April quarter," Luria commented.
Major cloud companies such as Microsoft and Alphabet have remained firm in their spending on AI data center infrastructure, but concerns regarding investments persist amid rapidly changing global trade policies. On an adjusted basis, Nvidia earned 81 cents per share in the first quarter. This was below the 93 cent average estimate of 17 analysts surveyed after April 15th, when Nvidia announced that H20 shipments would require additional licenses.
Excluding charges, the first-quarter adjusted earnings per share would have been 96 cents, according to data compiled by LSEG. Nvidia's data center segment revenue was $39.1 billion in the first quarter, slightly lower than analyst estimates of $39.3 billion, according to LSEG data. The company has $29.8 billion in commitments to have its products manufactured, an increase from the previous year but a decline quarter over quarter.
- The optimistic talk about demand for Nvidia's new Blackwell chips from clients such as Microsoft indicates a potential shift in lifestyle and technology for these companies, as they invest in advanced AI infrastructure.
- Despite the estimated $8 billion reduction in sales for the current fiscal second quarter due to US export restrictions on China, Nvidia's finance sector is seeking new avenues for growth, such as deals with Middle Eastern companies for AI infrastructure projects.
