China AI Chip Ambitions Clash With U.S. Export Rules in Nvidia's Crosshairs

Nvidia reported second-quarter earnings after the bell on Wednesday, exceeding expectations on both revenue and earnings per share, but its data center revenue fell slightly below analyst forecasts, triggering a decline in after-hours trading. The company reported adjusted earnings per share of $1.05 on revenue of $46.7 billion, surpassing estimates of $1.01 on $46.2 billion. Adjusted earnings and revenue for the same period in the prior year were $0.68 and $30 billion, respectively. However, data center revenue totaled $41.1 billion, slightly below the $41.3 billion expected by analysts. The figure does not include sales of its H20 chips, which are being restricted due to U.S. export controls [2].

Nvidia’s CFO, Colette Kress, noted that data center compute revenue declined 1% sequentially, primarily due to a $4 billion reduction in H20 sales. The company is currently not factoring H20 sales into its revenue forecasts but has stated that it could generate between $2 billion and $5 billion in such sales, depending on the geopolitical environment. Kress also pointed out that the U.S. government has yet to publish official regulations detailing how the 15% revenue share from H20 sales will be implemented, despite having received some export licenses following a July meeting between CEO Jensen Huang and President Donald Trump [1].

In response to the uncertainty, Huang emphasized that there is a “real possibility” of bringing Nvidia’s next-generation Blackwell AI chip to the China market, provided that U.S. export restrictions are lifted. He reiterated his advocacy for allowing American tech firms to compete in the Chinese AI market, stating that it would help solidify the U.S. tech stack as the global standard. Huang also predicted that the Chinese AI market, currently estimated at $50 billion in potential for Nvidia, could grow by 50% annually. He noted that Chinese AI developers are being encouraged to adopt homegrown alternatives, but emphasized the strategic advantage of using advanced U.S. chips to avoid creating a competitive domestic AI industry [1].

Nvidia also announced that it is ramping up production of Blackwell chips at full speed and has received extraordinary demand. CEO Huang described Blackwell as the central platform in the AI race. The company’s projections for Q3 revenue are set at $54 billion, plus or minus 2%, slightly above the $53.4 billion expected by analysts. In addition, Nvidia approved an additional $60 billion in stock buybacks to return value to shareholders [2].

Despite the strong earnings, Nvidia’s stock dropped more than 3% in after-hours trading due to the slight data center revenue miss and ongoing export uncertainties. The stock has been a key driver of the tech sector’s gains, having risen 35% year to date and more than 40% over the past 12 months. The fluctuation underscores the sensitivity of the AI chip market to geopolitical developments and regulatory shifts, particularly with regard to China. The Trump administration’s reversal of its ban on Nvidia chip sales has been accompanied by a 15% revenue cut and a broader 100% tariff on semiconductor imports, unless companies agree to build in the U.S. [2].

The situation reflects the growing tensions between the U.S. and China in the semiconductor industry, where access to advanced AI chips is a strategic priority. While Nvidia remains optimistic about its long-term prospects in China, the company’s near-term results will likely remain affected by policy uncertainty and the pace at which export licenses are issued [1].

Source:

[1] Huang: 'Real possibility' Nvidia brings Blackwell AI chip to ... (https://www.cnbc.com/2025/08/27/nvidia-jensen-huang-real-possibility-blackwell-ai-chip-to-china.html)

[2] Nvidia stock sinks after data center sales miss forecasts (https://finance.yahoo.com/news/nvidia-stock-sinks-after-data-center-sales-miss-forecasts-162719771.html)