Nvidia's China Enigma: A Mystery Unraveling Ahead of Earnings Report

Nvidia's upcoming earnings report will provide insight into the state of the AI industry, but its China problem remains a mystery. The company's revenue from China was $17.1 billion last fiscal year, representing 13% of total sales. However, some analysts believe that up to a third of Nvidia's revenue may come from China, as firms employ indirect means to acquire chips due to US sanctions. The Chinese government has also warned its tech industry, with a new deal requiring 15% of their revenues from Chinese sales to be paid to the Federal Government.

Nvidia's upcoming earnings report is set to provide valuable insights into the state of the AI industry, but the company's ongoing issues in China remain a significant concern. Last fiscal year, Nvidia's revenue from China was $17.1 billion, representing 13% of total sales. However, some analysts suggest that up to a third of Nvidia's revenue may originate from China, as firms employ indirect means to acquire chips due to U.S. sanctions [1].

The Chinese government has recently warned its tech industry, with a new deal requiring 15% of their revenues from Chinese sales to be paid to the Federal Government. This agreement was reached following Nvidia's resumption of sales of its H20 AI chips in China, with the condition that the company pays 15% of its chip revenue generated in the country to the U.S. government [1].

Nvidia's CEO, Jensen Huang, has been vocal about the company's desire to sell more advanced chips in China. He has been in dialogue with the U.S. government about offering a new product, the B30A, which would be more powerful than the H20. However, the U.S. has grown concerned that advanced American chips could be used in Chinese military applications, leading to ongoing negotiations [2].

Despite these challenges, Nvidia's Q2 2025 revenue hit $30 billion, up 122% year-over-year, driven by AI infrastructure dominance and Blackwell GPU adoption. The Data Center segment, which accounts for 88% of total revenue, grew 16% sequentially, fueled by Hopper/Blackwell demand and enterprise AI tools like NIM microservices [3].

Nvidia's high valuation metrics, including a P/E ratio of 48.4x and an EV/Revenue multiple of 26.1x, have sparked debate among investors. However, the company's strong margins (73% EBITDA) and $36 billion cash reserves justify optimism for long-term AI market capture [3].

As Nvidia prepares to release its earnings report, investors will be closely watching for updates on its China operations and the broader AI market. The company's ability to navigate geopolitical tensions and maintain its innovation edge will be crucial for its long-term success.

References:
[1] https://www.investopedia.com/nvidia-halts-china-chip-production-as-beijing-warns-over-security-reports-say-11795741
[2] https://www.cnbc.com/2025/08/22/nvidia-in-talks-with-us-to-sell-more-advanced-chip-to-china-huang.html
[3] https://www.ainvest.com/news/navigating-nvidia-q2-earnings-capitalizing-ai-growth-valuation-concerns-2508/