Nvidia Faces Major Revenue Hit Amid New China Export Restrictions Ahead of Earnings Report

Nvidia, the leading manufacturer of graphics processing units (GPUs), is set to report its earnings on Wednesday amid significant concerns over recent U.S. export restrictions on its chips to China. The company has experienced substantial growth in recent quarters, driven by high demand for AI infrastructure. However, the new restrictions have cast a shadow over its financial outlook, highlighting a shift in the geopolitical landscape that affects its business. On April 9, the Trump administration sent a letter to Nvidia, mandating that the company obtain an export license for its H20 chip, a version of the Hopper processor tailored for the Chinese market. These restrictions stem from ongoing concerns about the potential use of advanced AI chips in developing military-grade supercomputers by adversaries. Under President Biden, the U.S. government has been particularly wary of these risks, imposing various limitations on semiconductor exports to China. As a result of these new restrictions, Nvidia announced a $5.5 billion writedown on its inventory, a move described by BNP Paribas analyst David O'Connor as the largest in the chip industry's history. This write-off implies a $15 billion revenue hit on a rolling 12-month basis, significantly impacting the company's financial health. Despite this, analysts expect Nvidia to report a 66% revenue growth to $43.28 billion for the quarter ending April, according to LSEG. This level of growth, while impressive, is a sharp deceleration from the over 250% growth the company saw last year. The uncertainty surrounding the new export license requirements has further complicated projections for the rest of the year. On average, analysts predict a 53% growth in the current quarter, with similar expectations for the full fiscal year ending in January. Morgan Stanley analysts noted that the company's management team was surprised by the extent of the restrictions, despite earlier indications suggesting that the H20 chip would be permitted. Nvidia shares, initially down at the beginning of the year, have recently rebounded, gaining about 1% in 2025, compared to a 1% decline for the Nasdaq. In a recent address in Taiwan, Nvidia CEO Jensen Huang stated that the company's market share of GPUs in China has dropped from 95% to 50% due to the chip restrictions. According to a February SEC filing, Nvidia generated $17.1 billion in annual sales from customers in China, including Hong Kong, making it the company's fourth-largest market. Huang has also voiced concerns that such restrictions may incentivize Chinese engineers to develop their own AI processors, potentially undermining U.S. technological leadership in the sector. In May, Nvidia received some positive news when the Trump administration rescinded the "AI diffusion rule," which would have imposed even stricter export controls on AI chips to China and other nations. Both Nvidia and AMD opposed these stricter rules, arguing that they could hinder technological advancement and business operations. However, the administration indicated that it would replace the rule with a simpler regulation, leaving the extent of future restrictions unclear. Analysts from Morgan Stanley anticipate that discussions about Nvidia's replacement H20 chip and its long-term plans for the Chinese market will likely continue beyond this week's earnings call. The company is actively seeking licenses to ship the H20 under the current system, but the resolution of these issues remains uncertain. The recent developments underscore the complex interplay between technological innovation and geopolitical considerations. While Nvidia continues to lead the GPU and AI chip market globally, the restrictions highlight the challenges it faces in maintaining its presence in one of its largest markets. Industry insiders suggest that the company is navigating these challenges with a strategic focus on lobbying and adapting its product offerings to meet regulatory requirements, though the road ahead remains fraught with uncertainties. Nvidia's ability to innovate and adapt to changing regulations will be closely watched, as it seeks to balance U.S. security concerns with its commercial interests in China. The company's resilience in the face of these challenges is a testament to its strong market position and technological prowess, but the long-term impact of the restrictions on its global business strategy remains to be seen.