Nvidia encounters issues in China's market
Nvidia Boasts Strong Financial Performance Despite Chinese Market Restrictions and Billion-Dollar Sales Losses Ahead
In a tough landscape plagued by U.S.-China trade tensions and stringent export controls on semiconductors, Nvidia has managed to maintain its position as a lucrative stock player, posting impressive revenue growth and profits in the first quarter of the 2025/26 fiscal year.
Despite temporarily losing access to the crucial Chinese market, the Californian tech giant reported a remarkable 69% increase in revenues to $44.06 billion, surpassing the consensus forecast of $43.34 billion by Factset. This, however, did not include the shipping of semiconductors worth $2.5 billion to China, due to the new export restrictions. Revenues in the data center business, a sector that has significantly benefited from the AI boom in the last two years, rose by 73% to $39.1 billion. The adjusted net income climbed by 31% to $19.89 billion.
Nvidia has been grappling with billion-dollar costs due to the trade war between Washington and Beijing. The U.S. has tightened its export controls, necessitating Nvidia to obtain a special license for the sale of the H20 chip, a less powerful processor produced for the Chinese market. In response, Nvidia's CEO Jensen Huang criticized the export controls during an analyst call, expressing concerns that shielding Chinese chipmakers from competition would only strengthen their global standing.
The restriction on the H20 chip has caused a sudden drop in demand, causing a writedown of $4.5 billion on excess inventory held for agreed deliveries. In the current quarter, the China ban is projected to cost Nvidia $8 billion in sales, according to the company's estimates. The chip designer expects revenues of $45 billion for the period between May and July, with a possible deviation of 2% in either direction; Wall Street had previously estimated $45.92 billion.
However, the company is not resting on its laurels. Nvidia is actively seeking new revenue streams, inking a $1 billion chip deal with Saudi AI firm Humain and collaborating with the United Arab Emirates on building one of the world's largest data centers, securing millions of Nvidia processors.
The U.S. government had previously severely restricted the export of chips to the Emirates due to concerns that US technology could indirectly end up in China. With plans to sell Nvidia shares worth $800 million this year, CEO Jensen Huang will travel through Europe next week, anticipated to announce new deal announcements at stops in France, the UK, Belgium, and Germany.
Investors are growing concerned that Big Tech's heavy investment in AI applications and data centers may not be well-targeted, especially since the beginning of this year when a Chinese AI startup launched a chatbot "R1" that quickly matched the performance of large language models from the US, despite the developers' limited access to less advanced chips.
In fact, Nvidia is also betting on new chips, unveiling updated versions of its "Blackwell" platform in March, generating an estimated $98 billion this fiscal year and $119 billion next year. The company plans to release even more powerful chips from the Rubin generation by the second half of 2026. Lale Akoner, an analyst at trading platform eToro, emphasized that the situation around China remains a problem, with export restrictions to China potentially costing Nvidia up to $15 billion next year. Still, hopes are pinned on a new chip for the Chinese market, as the company adapts its strategy by focusing on alternative markets and diversifying its product offerings to maintain growth momentum.
In the face of financial challenges posed by U.S.-China trade tensions and export controls, Nvidia is diversifying its business, venturing into new markets and partnerships such as a $1 billion chip deal with Saudi AI firm Humain and collaboration with the United Arab Emirates on a massive data center project.
Despite the projected $8 billion loss in sales due to restrictions on the Chinese market, Nvidia anticipates revenue of $45 billion for the upcoming quarter, with potential adjustments of 2%, indicating an ongoing resilience in the technology and finance sectors.
