Nvidia, a leader in artificial intelligence chips, is poised to unveil another robust revenue forecast on the strength of its AI technologies. However, concerns loom over the potential impact of expanding U.S. restrictions on high-end chip sales to China, a major market for the company. Investors are closely watching how these bans could affect Nvidia’s market presence in China, which contributes more than one-fifth of its revenue.
The recent U.S. ban on selling H800 and A800 chips to China, Nvidia’s third-largest market, has raised worries about the company’s outlook. While Nvidia downplayed the immediate effects of the restrictions, its stock saw a decline amid reports that up to $5 billion in Chinese orders might be at risk.
Facing challenges in China, Nvidia has developed three new chips tailored for the Chinese market. Analysts believe that, despite potential performance reductions due to U.S. controls, these chips could still find acceptance among Chinese customers while meeting U.S. regulatory requirements.
Stacy Rasgon, an analyst at Bernstein, highlighted the challenges Nvidia faces, noting that the nature of the controls imposed forces a significant reduction in overall chip performance. However, Rasgon believes these chips may still attract the Chinese market, helping mitigate the impact of export curbs.
Nvidia is expected to announce a remarkable 173% surge in revenue for the third quarter, with projections indicating a further 195% increase for the current quarter. Despite concerns about Chinese restrictions, Nvidia’s stock trades at 31 times its 12-month forward earnings estimates, still below the price-to-earnings ratio of rival AMD.
The company’s commitment to innovation is evident in the introduction of the H200, a top-of-the-line chip for AI applications. The H200, with higher bandwidth memory, aims to maintain Nvidia’s competitive edge over AMD. Major cloud service providers, including AWS, Google Cloud, Microsoft Azure, and Oracle Cloud, will offer access to H200 chips. However, Morningstar analysts suggest that Nvidia’s growth may eventually reduce the material importance of revenue from China.
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