The AI chip giant's stock climbed over 3% to US$135.16 in early trading Tuesday. Investors are closely monitoring the financial impact of recent US export restrictions. Wednesday's earnings report will reveal how these measures affect the company's China business.
Export controls on the H20 AI chip could result in US$5.5 billion in charges for Nvidia. The company has already lost approximately US$15 billion in potential China sales. However new opportunities in Middle East markets and renewed cloud provider investments offer some optimism.
The Biden administration's export controls have limited Nvidia's ability to sell its advanced H20 AI chip to China. Nvidia has disclosed that these curbs could result in US$5.5 billion in charges. CEO Jensen Huang previously estimated the AI chip market in China could reach US$50 billion next year but admitted the company had already lost approximately US$15 billion in potential sales due to restrictions. China accounted for about 13% of Nvidia's revenue last year. Year-to-date Nvidia's shares are down about 2% contrasting sharply with their nearly threefold gain in 2024.
Nvidia is expected to report first-quarter revenue of US$43.28 billion representing a 66.2% year-on-year increase. Analysts at Susquehanna estimate the export curbs impacted the final three weeks of the April quarter costing roughly US$1 billion in sales. Wedbush analysts project a quarterly hit between US$3 billion and US$4 billion for the remainder of the year. Gross margins are expected to drop 11 percentage points to 67.7% partly due to H20 write-downs. "China will probably be the biggest swing factor for Nvidia's quarter" said Gil Luria analyst at D.A. Davidson.
Easing of some Biden-era export controls under the AI diffusion rule may open new markets for Nvidia in the Middle East. The company has announced plans to supply hundreds of thousands of AI chips to Saudi Arabia including 18,000 Blackwell chips to a start-up backed by the Saudi sovereign wealth fund. Investor confidence has been bolstered by renewed AI investment from major cloud providers including Google which pledged continued spending despite earlier slowdown concerns.
Nvidia CEO Huang criticized the semiconductor export restrictions as counterproductive stating they have accelerated Chinese competitors like Huawei's development of domestic chip technology. As Nvidia reports earnings Wednesday all eyes will be on how the company navigates regulatory restrictions and rising AI infrastructure costs.
Nvidia's diversification beyond China demonstrates strategic adaptability amid escalating tech trade tensions. Success in alternative markets could restore investor confidence in long-term growth prospects.
The Middle East expansion reveals the company's agility in capturing new opportunities globally. Strategic sovereign wealth fund partnerships may provide stable revenue sources.
Wednesday's earnings will test whether Nvidia can successfully compensate for China losses through geographical diversification. Market reaction will signal investor faith in the company's resilience.