China restrictions take center stage as Nvidia prepares to announce results

Nvidia is preparing to release its latest quarterly financial results and the focus is on the impact of export restrictions to China. The company announced it would be taking a significant $5.5 billion writedown on inventory related to its H20 chip, described by analysts as the largest writedown in the history of the chip industry. While Nvidia continues to experience substantial revenue growth compared to other tech giants, the rate of growth has slowed considerably from a year earlier.

Despite the continued strong demand for artificial intelligence infrastructure, Nvidia’s upcoming earnings report is overshadowed by concerns stemming from China. The company received a letter from the Trump administration in April, stating the need for an export license for the H20 chip, a specialized version of its Hopper processor designed for the Chinese market to adhere to previous U.S. restrictions.

Over the course of President Biden’s administration, the U.S. government has been wary of AI chips from Nvidia and other semiconductor companies such as Advanced Micro Devices being used to develop supercomputers for military purposes by adversaries. In response to the new export regulations, Nvidia made the decision to write off $5.5 billion in inventory, leaving a significant impact on future revenue.

Analysts predict Nvidia to report a 66% increase in revenue for the quarter ending in April, reaching $43.28 billion, according to LSEG. While this growth rate surpasses that of Nvidia’s fellow tech giants, it signifies a substantial deceleration from the growth recorded a year prior, which exceeded 250%.

With the uncertainty surrounding projections for the upcoming year due to the new export license requirements, analysts estimate a 53% growth for the current quarter and a similar figure for the entire fiscal year ending in January. Analysts at Morgan Stanley have voiced concerns that Nvidia may face a larger blow than initially anticipated.

Nvidia’s CEO Jensen Huang recently stated that the company’s GPU market share in China has dropped from 95% to 50% due to chip restrictions and emphasized that limiting chip exports to China could prompt engineers there to develop their own processors, thus strengthening the country’s AI semiconductor ecosystem and posing a threat to U.S. technological dominance. In May, Nvidia received positive regulatory news when the Trump administration eliminated the “AI diffusion rule,” which imposed additional restrictions on exporting AI chips to China and other nations. Both Nvidia and AMD had opposed these restrictions.

Despite this, the Trump administration hinted at potentially introducing a replacement rule to regulate Nvidia’s exports further. Morgan Stanley analysts believe that questions regarding Nvidia’s new H20 chip and its China strategy will linger beyond the upcoming earnings report. Huang and his team are currently lobbying for licenses to export the H20 chip, which could be granted under the current regulations.