Wall Street is looking past Nvidia's China problem … for now

Yahoo

4 days ago

Wall Street is brushing aside Nvidia's (NVDA) China worries, pointing to the company's strong sales growth in the rest of the world following its fiscal first quarter earnings on Wednesday.
Nvidia stock jumped more than 5% in early trading Thursday.
Nvidia reported better-than-anticipated revenue of $44.1 billion in Q1, up 69% year over year, but fell short on adjusted earnings per share, which topped out at $0.81. Wall Street was anticipating adj. EPS of $0.93. Data Center revenue was also light, coming in at $39.1 billion versus expectations of $39.2 billion.
Normally, that kind of report would send Wall Street into a panic, but investors shrugged off the misses, which Nvidia attributed to the $4.5 billion charge it took on H20 chips the Trump administration banned it from selling to China in April.
That's because, putting the H20 charge aside, Nvidia would have pushed well past earnings expectations. And while the company said it would take an $8 billion hit in lost sales due to the H20 ban in Q2, analysts are upbeat about Nvidia's outlook.
'Nvidia's business, excluding China, is booming,' Deepwater Asset Management managing partner Gene Munster wrote in a note following Nvidia's earnings announcement.
'For the July quarter, they effectively raised guidance for everything except China by 10%. Today's July guidance was for $45 billion. Adding back the $8 billion impact of the curbs gets us to $53 billion,' Munster wrote. 'The bottom line: These revisions are evidence that we are still early in the AI buildout.'
Nvidia notified investors on April 15 that the US government ordered it to stop selling its H20 chips into China. The company built its H20 processor specifically for the Chinese market to comply with controls banning the sale of a more powerful chip to the region.
During Nvidia's earnings call on Wednesday, CEO Jensen Huang said the company would no longer be able to continue modifying its prior-generation Hopper chips, which it used to build the H20, to produce less powerful offerings for China.
But William Blair analyst Sebastien Naji wrote in an investor note that even if Nvidia is locked out of China, it will continue to benefit from further growth elsewhere.
'While tight US export controls essentially withdraw Nvidia from a $50 billion China [total addressable market] for AI, we see ample room for Nvidia to maintain its industry-leading growth over a multiyear period addressing the much broader non-China AI opportunity across hyperscalers, enterprises, and increasingly sovereigns,' he wrote.
Sovereigns, or sovereign AI platforms, are AI services built and sometimes run by individual governments.
And Nvidia appears ready to reap the benefits of sovereign AI buildouts, with Huang joining President Trump during his recent trip to the Middle East where Trump announced a deal that will see Nvidia provide hundreds of thousands of AI chips to Saudi Arabia and the United Arab Emirates (UAE) to power their own AI data centers.
Despite Wall Street's general approval of Nvidia's results and outlook without China, Huang isn't giving up on the region. The CEO issued a dire warning during the company's earnings call, saying that whatever chip AI platform wins in China is positioned to lead globally.
'China is one of the world's largest AI markets and a springboard to AI success,' Huang said, adding that China's AI will move on with or without US-made chips like Nvidia's.
According to Reuters, Nvidia is working on a new AI chip based on the company's Blackwell architecture that will meet the Trump administration's export controls. But it will need to ensure it can get that product on the market soon if it hopes to regain its lost market share in the country.
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