Nvidia revenue soars, but China chip sales screech to a halt
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Nvidia says it's not expecting to sell any of its H20 chips to customers in China in the current quarter amid international trade tensions.
Why it matters: The company had agreed to give the U.S. 15% of the China sales of its H20 chips in exchange for export allowances — but Beijing has reportedly told Chinese companies not to buy them, concerned about their security and miffed about their downgraded specs.
Zoom in: Nvidia still delivered 56% revenue growth from a year ago, to $46.7 billion, and net income growth of 59%, to $26.4 billion, as the AI economy continues to boom.
Yes, but: Nvidia forecast sales of $54 billion for the third quarter, disappointing some investors.
- "Though that was in line with the average Wall Street estimate, some analysts had projected more than $60 billion," Bloomberg noted.
- One reason for the lower-than-expected forecast on Wednesday is that the company is not incorporating a resumption of H20 sales to China in its outlook.
- Nvidia CFO Colette Kress said on an earnings call that the company could reap $2 billion to $5 billion in third-quarter revenue from H20 sales to China "if geopolitical issues reside" and "if we have more orders, we can build more."
The big picture: The bellwether AI stock now accounts for about 8% of the benchmark S&P 500 index.
- That's the highest weight of any single stock since data collection started in 1981, according to Apollo Global Management chief economist Torsten Sløk.
- "The worries are that if Nvidia doesn't deliver, then all the worries about AI overhype and extreme valuations wouldn't look so misplaced," writes Hardika Singh, analyst at Fundstrat. "And if not for Nvidia, can the AI party go on?"
In Nvidia's critical data center segment, revenue rose 56%, to $41.1 billion.
- But from the second quarter, data center revenue was up only 5%, potentially signaling a slowdown.
The big question: Will the Chinese market open up to Nvidia?
- CEO Jensen Huang estimated on an earnings call that the market would be worth $50 billion in revenue next year and could grow 50% on a yearly basis.
The impact: The initial market reaction to Nvidia's earnings was slightly negative.
- The stock was down about 2 to 4% in after-hours trading ahead of its 5 pm earnings call.
