Nvidia discloses more China risks, but CEO praises Trump

Nvidia reported strong sales growth of 69% but cautioned about increasing risks from U.S.-China tech tensions, including restrictions on Chinese AI models and connected vehicle tech. While CEO Jensen Huang praised Trump's rescinding of an export rule, he criticized new Trump administration curbs impacting sales of the H20 chip in China, estimating a $2.5 billion sales loss in Q1 and a further $8 billion hit in Q2; however, Nvidia's overall Q2 sales forecast of $45 billion, driven by deals in the Middle East and Taiwan, exceeded expectations, leading to an after-hours stock increase as analysts viewed the China impact as manageable.

Analysis

Nvidia (NVDA) reported a robust 69% year-over-year sales growth in its latest quarter, yet simultaneously highlighted escalating risks from U.S.-China technology tensions. The company's quarterly filing introduced new concerns, specifically citing potential business impact from restrictions on Chinese open-source AI models like DeepSeek and Qwen, and U.S. regulations affecting connected vehicle technology in China, a market where Nvidia's automotive chip business has recently gained traction. While CEO Jensen Huang praised former President Trump's rescission of a Biden-era export rule, he acknowledged the uncertainty surrounding its replacement and criticized new Trump administration curbs on the H20 chip designed for China, calling it a "springboard to global success." These export limitations resulted in a $2.5 billion sales loss in the fiscal first quarter and are projected to cause an $8 billion sales reduction in the current second quarter. Prior to these curbs, H20 sales in China amounted to $4.6 billion as customers stockpiled, with the China business contributing 12.5% to Nvidia's total revenue. Despite these headwinds, Nvidia projects second-quarter sales of $45 billion (plus or minus 2%), implying approximately 50% year-over-year growth and only slightly below LSEG analysts' average estimate of $45.90 billion. This resilience is supported by significant deals anticipated in Saudi Arabia, the United Arab Emirates, and Taiwan, leading to an after-hours share price increase and analyst sentiment, such as from Running Point Capital, viewing the China impact as a "manageable speed bump" within a broader "hyper-accelerated growth narrative." Huang emphasized the strategic importance of U.S. platforms remaining dominant for open-source AI, including Chinese models, and expressed support for U.S. tech leadership and advanced manufacturing initiatives.

Key Decisions for Investors

• Investors should weigh Nvidia's continued strong growth trajectory and positive overall guidance against the clearly quantified financial impacts stemming from U.S.-China trade restrictions.
• It is crucial to closely monitor developments in U.S. export control policies towards China, as these directly influence Nvidia's revenue from a key market and its strategic engagement with global AI development.
• Evaluate the company's success in diversifying its revenue streams and securing new large-scale deals in regions like the Middle East and Taiwan, which serve as critical offsets to challenges in the Chinese market.
• Consider the long-term implications of geopolitical tensions on Nvidia's ability to maintain its leadership in the global AI hardware and software ecosystem, particularly regarding its strategy for supporting open-source AI models globally.