With Nvidia's Q2 earnings in sight, Trump deal could boost outlook
China, meanwhile, is urging companies not to use Nvidia's chips, though it hasn't banned them from doing so.
Trump talked up the deal during a press conference Monday, adding that Nvidia CEO Jensen Huang negotiated the Trump administration down from an original 20% cut of the company's China sales.
"I think this is certainly an opportunistic moment for the administration to raise additional dollars and in the name of China's desire for access to the leading semiconductor products from the United States," Futurum Group CEO Daniel Newman told Yahoo Finance.
"And while we can argue that these are not the leading chips, they're the deprecated ones, there's clearly insatiable demand in the China market for Nvidia, and to some extent AMD," he added.
Nvidia said in a statement, "We follow rules the US government sets for our participation in worldwide markets. While we haven't shipped H20 to China for months, we hope export control rules will let America compete in China and worldwide."
The payment, which could face legal challenges, won't show up in Nvidia's Q2 report but could boost its Q3 outlook if the administration moves quickly.
While the company might not bring in as much for itself from China sales as investors had hoped, the agreement is Nvidia's current best chance to compete in one of the world's largest AI markets.
"From my perspective, it is a positive for those companies. As you know, it opens a market where there's still high demand. Nvidia, especially, still has a lot of cache with its name," Forrester senior analyst Alvin Nguyen explained.
Access to China now helps Nvidia in the long run
Regaining access to China doesn't just help Nvidia in the near term — it also sets up the company for continued sales into the future as customers develop and deploy apps and services using its CUDA software.
According to Bernstein analyst Stacy Rasgon, while rival Chinese chipmakers might match and, in some cases, exceed the H20's performance, developers are already building on CUDA, making switching to competing platforms costly and difficult.
"The Chinese already have products, local products, that are actually, from the performance, better than what Nvidia is allowed to sell," Rasgon told Yahoo Finance.
"Nvidia has the ecosystem advantage," he added. "The Chinese developers want to use Nvidia. They built their whole infrastructure on Nvidia. But if Nvidia is not allowed to sell, you're encouraging those local developers to coalesce around Huawei and build up that ecosystem."
Rasgon, however, warned that if the US doesn't allow Nvidia to scale its AI chip's capabilities over time, developers could end up ditching the company's offerings for those of its rivals.
"The longer we can keep the US guys, appropriately balancing against the national shared security concerns, playing there, the better," Rasgon said.
The fear is that if Nvidia and AMD are completely boxed out of the Chinese market, China will continue to build up its AI capabilities to the point where the global market is split between US and Chinese AI companies, raising potential national security concerns.
Don't expect sales to show up just yet
While Nvidia may soon get the go-ahead to sell its chips into China again, revenue isn't likely to start showing up in the company's bottom line until the third or fourth quarter. That's because Nvidia will need to get its supply chain running again.
The company is also still expected to see an $8 billion hit on Q2 earnings due to the Trump administration's original decision to ban the H20 chips. Nvidia saw a $4.5 billion impact from the ban in Q1.
There's also the question of whether Nvidia will ultimately pick up the tab for Trump's new fee. According to Futurum Group's Newman, the company will likely pass on the cost to its customers.
"My assumption is, if the demand is as significant as I believe it is, Nvidia and AMD will be able to negotiate a higher price to cover the potential cost," Newman said.
Trump said during his press conference that he is also considering allowing Nvidia to ship a degraded version of its Blackwell chip technology to China. That could further boost Nvidia's revenue in the region. But it could still be some time before the chip hits the market.
In the meantime, Nvidia can lean on its H20. As long as the White House doesn't ban it again.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on X/Twitter at @DanielHowley.
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