Nvidia's impact from being ensnared in the US-China tech conflict is less severe than initially anticipated
Nvidia Faces $5.5 Billion Hit Due to US Export Restrictions on H20 AI Chips
San Francisco-based Nvidia Corporation, a leading AI chip designer, has reported a financial hit of $5.5 billion because of the US government's recent restrictions on exporting its H20 artificial intelligence chips to China. The setback was revealed in the company's quarterly earnings report on Wednesday.
Though Nvidia faced an unexpected loss, the impact from the H20 export controls during Q1 was less detrimental than anticipated. The company incurred a $4.5 billion charge in Q1 related to excess H20 inventory and obligations it was unable to fulfill due to the export controls. Originally, the company had warned investors the hit could reach up to $5.5 billion.
The H20 export restrictions underscore Nvidia's vulnerability in the ongoing US-China trade and technology war. Despite the setback, the smaller-than-anticipated charge is likely to be viewed as a positive sign, indicating the company's resilience amidst difficult trading conditions. It is essential to note that Nvidia still anticipates losing another $8 billion in revenue during Q2 due to the H20 export controls.
Nvidia’s stock rose 3.5% in after-hours trading following the report.
Launched last year, the H20 chip was designed to cater to stringent US export controls for China, drawing around 13% of Nvidia’s sales last year. However, last month, the White House announced that a special license would be required to export the H20 to China, a decision that industry insiders believe contributed to the development of the powerful Chinese AI model DeepSeek. Nvidia CEO Jensen Huang has publicly criticized US chip export controls, labeling them a "failure."
Nvidia’s overall business remains on a growth trajectory, with the company exceeding analysts’ expectations for both revenue and profits during Q1. Nvidia earned $44.1 billion in revenue, up 69% from the same period in 2021, and its net income grew 26% YoY to $18.8 billion.
Analyst Thomas Monteiro, senior analyst at Investing.com, commented in a report, stating that the smaller-than-expected impact from the H20 controls "highlighted Nvidia's adaptability to changing market conditions."
Given Nvidia's central role in powering many AI systems, the company's earnings serve as a barometer for the broader tech sector. The industry has faced uncertainty due to questions about returns on AI spending and concerns around tariffs and trade policy.
During the earnings call, Huang highlighted growing global demand for major AI services, such as those offered by Microsoft, Google, and OpenAI, boosting demand for AI infrastructure and chips. Huang also mentioned investments by governments in sovereign AI projects and a massive data center complex in Abu Dhabi in partnership with the US, which is set to be the largest data center system outside the United States with 5-gigawatts of capacity.
Huang also touched on the US President Trump's effort to encourage tech companies to shift more manufacturing, including semiconductor production, to the US. Last month, Nvidia announced plans to partner with manufacturing companies to build factories in Texas to produce AI chips and supercomputers.
Technology's influence on the financial realm is evident as Nvidia Corporation, a key player in AI chip development, faces a setback following US export restrictions on its H20 AI chips. This $5.5 billion hit, while significant, was less detrimental than initially anticipated, according to Nvidia's quarterly earnings report.
The ongoing US-China trade and technology war has placed Nvidia in a vulnerable position, yet the company's ability to adapt to challenging market conditions, as evidenced by the smaller-than-anticipated charge, is a testament to its resilience in the general-news arena.
