Nvidia expects $8 billion hit from US chip rules; forecast misses estimates
By Arsheeya Bajwa, Stephen Nellis
(Reuters) -Nvidia beat sales expectations during its fiscal first quarter but forecast second-quarter revenue below market estimates on Wednesday, expecting an $8 billion hit to sales from tighter U.S. curbs on exports of its AI chips to key semiconductor market China.
Shares of the world's most valuable semiconductor firm still rose 4% in extended trading. The stock is relatively flat so far this year, compared with 2024 when the shares nearly tripled in value. Nvidia now faces trade restrictions on what it can sell, and the AI data center market is also maturing.
Washington's years-long efforts to thwart Beijing's access to top-of-the-line U.S. technology have resulted in stricter restrictions on the export of Nvidia's AI chips - stifling the company's access to one of the largest markets for semiconductors.
But Nvidia earlier this month signed a spate of new deals in the Middle East, including the first phases of a 10-square-mile data center site in the United Arab Emirates that could eventually use 5 gigawatts' worth of AI infrastructure. The company has also announced similar deals in Saudi Arabia and Taiwan.
"We have a line of sight to projects requiring tens of gigawatts of Nvidia AI infrastructure in the not-too-distant future," Nvidia Chief Financial Officer Colette Kress told analysts on a conference call.
But in the shorter term, Nvidia faces restrictions in China, where Kress said its data center revenue declined.
New U.S. restrictions on the sale of Nvidia's H20 chips to China, the only AI processors it could legally export to the country, prompted Nvidia to disclose in April that it expected a $5.5 billion charge, while CEO Jensen Huang had in May pegged the revenue impact related to the restrictions at about $15 billion.
On Wednesday, Nvidia said the actual first-quarter charge due to the H20 restrictions was $1 billion less than expected because it was able to reuse some materials. It said it lost $2.5 billion in H20 sales in the first quarter and expected to miss $8 billion in the second quarter.
However, Nvidia also said the H20 brought in $4.6 billion in sales in the first quarter and that China accounted for 12.5% of overall revenue in the first quarter.
Gil Luria, an analyst with D.A. Davidson, said the overall impact of the H20 restrictions was less than feared.
"There was a removal of some China revenue from the July quarter guides, but there was also China revenue that was pulled into the first quarter. Chinese buyers were stocking up on H20 ahead of the restrictions, which is what propped up the April quarter," Luria said.
Though major cloud companies such as Microsoft and Alphabet have stood their ground on the billions they have earmarked this year for spending on expanding infrastructure for AI data centers, worries about such spending persist amid rapidly changing global trade policies.
On an adjusted basis, Nvidia earned 81 cents per share in the first quarter. Analyst estimates varied widely as Wall Street tried to assess the impact of restrictions on some of Nvidia's chip sales to China.
Excluding the charges, first-quarter adjusted earnings per share would have been 96 cents.
According to data compiled by LSEG, the estimate for the company's adjusted quarterly earnings was 93 cents per share, with 17 analysts providing estimates after April 15 when Nvidia said H20 shipments would require additional licenses.
The artificial intelligence market bellwether expects revenue of $45 billion, plus or minus 2%, in the second quarter, compared with analysts' average estimate of $45.90 billion, according to data compiled by LSEG.
The forecast includes a loss in H20 revenue of about $8 billion due to the recent export limitations.
"The broader concern is that trade tensions and potential tariff impacts on data center expansion could create headwinds for AI chip demand in upcoming quarters," said Emarketer analyst Jacob Bourne. "This doesn't signal an end to Nvidia's dominance, but highlights that sustaining it will require navigating an increasingly complex landscape of geopolitical, competitive, and economic challenges."
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