By Stephen Nellis, Max A. Cherney and Arsheeya Bajwa
(Reuters) -Nvidia shares dipped on Wednesday as the fate of its China business hung in the balance, caught up in the trade war between Washington and Beijing.
CEO Jensen Huang expects permission to restart selling Nvidia’s chips to China after striking a deal with U.S. President Donald Trump to pay commissions to the U.S. government. But with no formal U.S. rules in place and questions about whether Chinese regulators will discourage purchases of Nvidia chips, the AI market bellwether excluded potential China sales from the forecast for the current quarter.
That left only a lukewarm outlook that, while still huge in absolute dollar terms and slightly above analyst estimates, disappointed investors accustomed to blowout results and sent shares down 3.2% in after-hours trading. The stock dip clipped about $110 billion from Nvidia’s $4.4 trillion market capitalization.
“Nvidia’s biggest bottleneck isn’t silicon, it’s diplomacy,” said Michael Ashley Schulman, chief investment officer at Running Point Capital. He added that Nvidia’s growth curve was “still impressive, but not as exponential.”
The chipmaker expects revenue of $54 billion, plus or minus 2%, in the third quarter, compared with analysts’ average estimate of $53.14 billion, according to data compiled by LSEG. But its fiscal second-quarter results came up short of some analyst expectations in its important data center segment, with some analysts suggesting cloud computing providers may be more cautious about spending.
Nvidia also said it has not assumed any shipments of its H20 chips to China in its outlook, despite having earlier this month received some licenses to sell them. If geopolitical issues subside and it gets more orders, Nvidia said it could add $2 billion to $5 billion in H20 revenue in the third quarter.
While Nvidia’s forecast came in a bit softer than expectations, any sales to China next quarter would be added to the outlook, said Ben Bajarin, CEO of technology consulting firm Creative Strategies. “That is a big question mark to watch.”
Still, demand has surged for Nvidia’s advanced chips that can speedily process the large amounts of data used by generative AI applications as businesses race each other to dominate the new technology.
Chief Financial Officer Colette Kress said the company’s “sovereign AI” efforts – a push to sell AI chips and software to governments around the world – are on track to generate $20 billion in revenue this year. Kress also said AI efforts are on track to spur $600 billion in spending by cloud and enterprise customers this year alone and could generate $3 trillion to $4 trillion in infrastructure spending by the end of the decade.
