Nvidia shares climbed over 3 per cent to $135.16 in early trading on Tuesday as investors brace for the company’s earnings report due Wednesday, focusing on the financial impact of recent US export restrictions on its China business.Nvidia shares were trading 3.10 per cent higher at $135.36 as of 11:07 am ET.The Biden administration’s export controls, building on measures introduced last year, have limited Nvidia’s ability to sell its advanced H20 AI chip to China. Nvidia has disclosed that these curbs could result in $5.5 billion in charges. CEO Jensen Huang previously estimated the AI chip market in China could reach $50 billion next year but admitted the company had already lost approximately $15 billion in potential sales due to the restrictions, Reuters reported.China accounted for about 13 per cent of Nvidia’s revenue last year, but the company does not break out sales specifically for the H20 chip. Analysts at Wedbush highlighted that the key question for Nvidia’s upcoming earnings will be whether it can compensate for lost sales from the H20 chip and its China operations with growth elsewhere.Despite reports that Nvidia plans to launch a new AI chipset for China based on its latest Blackwell architecture, ongoing uncertainty around China sales has weighed on the stock. Year-to-date, Nvidia’s shares are down about 2 per cent, a sharp contrast to their nearly threefold gain in 2024.“China will probably be the biggest swing factor for Nvidia’s quarter,” said Gil Luria, analyst at D.A. Davidson.Nvidia is expected to report first-quarter revenue of $43.28 billion, representing a 66.2 per cent year-on-year increase, according to LSEG data. However, analysts at Susquehanna estimate the export curbs impacted the final three weeks of the April quarter, costing the company roughly $1 billion in sales. For the remainder of the year, lost revenue could reach $4.5 billion per quarter, Wedbush analysts project a quarterly hit between $3 billion and $4 billion.Gross margins are also expected to take a hit, with Wedbush forecasting an 11 percentage point drop to 67.7 per cent, partly due to write-downs related to H20 shipments, which could reduce margins by as much as 12.5 per cent.Nvidia CEO Huang recently criticized the semiconductor export restrictions as counterproductive, stating they have accelerated Chinese competitors like Huawei’s development of domestic chip technology.On a positive note, easing of some Biden-era export controls under the AI diffusion rule may open up new markets for Nvidia in regions such as the Middle East. Nvidia has already announced plans to supply hundreds of thousands of AI chips to Saudi Arabia, including 18,000 of its Blackwell chips to a start-up backed by the Saudi sovereign wealth fund.Investor confidence has also been bolstered by renewed AI investment from major cloud providers, including Alphabet’s Google, which has pledged continued spending despite earlier concerns of a slowdown.“I don’t think investors’ expectations are very high as we go into it,” said Ivana Delevska, CIO at Spear Invest, which holds Nvidia shares in an actively managed ETF.As Nvidia reports its earnings on Wednesday, all eyes will be on how the company navigates the twin challenges of regulatory restrictions in China and rising AI infrastructure costs.
