In of Nvidia Corp (NASDAQ:NVDA, ETR:NVD) highly anticipated earnings next week, there were reports that the company faces fresh pressure in China that could dent its eagerly awaited reopening of this key market.
Following negotiations with the US government, the big news in the earnings would have been comments on the resumption of sales of its restricted H20 chip to China.
However, reports on Thursday in the Financial Times suggested that Beijing has moved to discourage local technology companies from buying its H20 artificial intelligence chips, after officials took offence to remarks from the US Commerce Secretary.
Howard Lutnick told NBC that China was receiving “not our second-best stuff, not even our third-best” and that the aim was to get Chinese firms “addicted to the American technology stack.”
“Reports suggest China is now encouraging its leading technology companies to stop buying the Nvidia chips and use domestic technology instead,” said AJ Bell investment analyst Dan Coatsworth.
“This is a political spat that underlines the ongoing tensions between the US and China, and one which could have major ramifications for Nvidia and the global tech space.”
Earnings expectations
The development comes as Nvidia prepares to report second-quarter results on August 27, where the AI chipmaker is expected to report robust demand and a rebound in China-related revenues.
However, any cooling in Chinese orders reflecting today's news could weigh on the outlook.
Broker Wedbush cited strong demand across hyperscale and model builder customers, rising capex intentions through 2025, and robust supply chain signals for its B200 and GB200 parts.
Analysts expect a rebound in China-related revenues from the licensed H20 chip, despite recent political headwinds.
Product transitions remain on track, with GB300 shipments expected later this year and the Rubin chip scheduled for 2026.
There had been reported that the upcoming Rubin chip might be delayed, so any comments on the schedule should be taken well.
Analyst Matt Britzman at Hargreaves Lansdown said the looming resumption of sales into China was "the big news for Nvidia".
In exchange for export licenses, the company is set to pay 15% of all Chinese revenue to the US government, a highly unusual revenue share agreement, but seen as a reasonably small price to pay to reopen the Chinese market.
"Outside of China, overall demand remains critical," says Britzman. "Markets have already heard from major customers that data centre expansion is a priority, which should benefit NVIDIA.
"Margins will also be worth watching. In theory, investors should start to see some improvement as deliveries of its latest chip technology continue to scale."
Lale Akoner, analyst at eToro, felt expectations are "running high", and while there was "still room to outperform", China is "a material wildcard".
Consensus forecasts point to around $46 billion in second-quarter revenue, though recent intra-quarter data suggests a result closer to $47 to $48B, supported by gross margins north of 72%.
He said key focus will be guidance "and whether Nvidia can meet the market's aggressive $54 billion hopes".
A partial restart of H20 chip shipments to China has "the potential to reshape forecasts if fully resumed".
But with the stock trading near record highs, a strong quarter is likely to be "not enough", Akoner said.
"The more important signal will be whether management can reassert Nvidia’s long-term roadmap, anchored by Rubin and next-gen Blackwell, as the central thesis in the AI infrastructure cycle."