NVIDIA beats earnings expectations while stock price declines, signaling market concerns about future growth.
Nvidia reported quarterly earnings Wednesday that beat expectations with profit of $26.4 billion on record revenue of $46.7 billion in the recently ended quarter, driven by intense demand for chips from major tech companies powering AI datacenter computing. However, shares slipped amid concerns about an AI chip spending bubble and the company's stalled business in China, falling slightly more than 3% in after-market trading. "The data center results, while massive, showed hints that hyperscaler spending could tighten at the margins if near-term returns from AI applications remain difficult to quantify," said Emarketer analyst Jacob Bourne.
While overall revenue significantly increased year-over-year, Nvidia's Data Center compute products like its coveted graphics processing units (GPUs) declined 1% from the previous quarter. The drop was driven by a $4 billion decrease in sales of H20 chips—specialized processors the company designed for the Chinese market. For the current quarter, Nvidia projected $54 billion in revenue but said its forecast assumes no H20 sales.
The H20 situation is entangled in geopolitical tensions. Earlier this month, President Donald Trump confirmed that Nvidia would pay the United States 15% of its revenues from sales of certain AI chips to China, calling the H20 chips "obsolete," despite their previous targeting under export restrictions. Beijing has responded by expressing national security concerns about Nvidia chips and urging Chinese businesses to rely on local semiconductor suppliers instead. Nvidia developed the H20 specifically for export to China to address US concerns that its top-tier chips could be used for weapons development or AI applications in the rival nation.
Nvidia chief executive Jensen Huang emphasized the company's interest in the China market, stating: "There is interest in our H20s; we have supply ready to ship." Huang estimated the Chinese market to be a $50 billion opportunity for Nvidia this year, adding: "We're still waiting on several of the geopolitical issues going back and forth between the governments and the companies trying to determine their purchases and what they want to do." Huang said Nvidia is talking with the Trump administration about the importance of US companies being able to compete in China, advocating that "American tech companies" be able to "lead and win the AI race and help make the American tech stack the global standard."
Nvidia serves as a bellwether for the AI market and became the first company to reach $4 trillion in market value last July. The earnings report comes amid broader market worries about an AI spending bubble that could burst and hurt the chip giant's fortunes. However, the top four cloud computing service providers are on pace to spend about $600 billion on AI infrastructure this year, suggesting substantial runway remains for Nvidia's business. "We're just seeing just enormous amount of interest in AI and demand for AI right now," Huang said on an earnings call.