Nvidia's China Business Uncertainty Causes $110B Value Drop

According to reports, Nvidia's outlook for its China business remains uncertain, with the company's stock dropping 3.2% in after-hours trading on August 27. This decline led to a loss of around $110 billion from Nvidia's $4.4 trillion market value. CEO Jensen Huang predicts that Nvidia will be allowed to resume selling chips to China after an agreement with U.S. President Trump to pay commissions to the U.S. government. However, due to the lack of formal regulations from the U.S. and concerns over whether Chinese regulators might block chip purchases, Nvidia has excluded potential sales from China in its quarterly forecast.

Running Point Capital's CIO remarked, "Nvidia's biggest bottleneck isn't the chips, but diplomacy. While its growth trajectory remains impressive, it's not as exponential as it once was." According to data from the London Stock Exchange, Nvidia expects third-quarter revenue to be around $54 billion, plus or minus 2%, while analysts' average estimate stands at $53.14 billion. However, the company's second-quarter results in its key data center sector fell short of some analysts' expectations. Some analysts believe cloud providers may be more cautious with spending.

Nvidia also indicated that, although it received partial approval to sell H20 chips earlier this month, it has not included H20 chip shipments to China in its outlook. If geopolitical tensions ease and Nvidia receives more orders, H20 chip revenue in the third quarter could increase by $2 to $5 billion. Despite this, demand for Nvidia's advanced chips has surged as companies vie for dominance in new technologies.

Nvidia's CFO Colette Kress stated that the company's "autonomous AI" program, which sells AI chips and software to governments worldwide, is expected to generate $20 billion in revenue this year. She added that AI could stimulate $600 billion in spending from cloud computing and enterprise customers this year, and by 2020, it might lead to infrastructure spending of $3 to $4 trillion.

Nvidia reported that about half of its $41 billion in data center revenue last quarter came from large cloud service providers. According to Visible Alpha, this number was slightly lower than the expected $41.42 billion. Nvidia has also forecasted an adjusted gross margin of 73.5% for the current quarter, slightly above analysts' expectation of 73.3%.

eMarketer analysts noted, "While the data center performance is strong, it also suggests that if the short-term returns from AI applications remain difficult to quantify, the spending on hyperscale data centers might tighten profit margins."