Nvidia's Earnings and the Fate of Momentum ETFs: How Guidance, China Clarity, and Blackwell Progress Shape High-Beta AI and Semiconductor ETFs

Nvidia's recent earnings report and strategic advancements have reignited debates about the future of high-beta AI and semiconductor ETFs. As the company's Blackwell architecture gains traction and regulatory clarity emerges in China, investors must assess how these factors will shape the trajectory of ETFs like the VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX). This article dissects the interplay between Nvidia's guidance, geopolitical dynamics, and technological innovation to determine whether these ETFs remain compelling long-term bets.

Nvidia's Earnings: A Catalyst for Sector Momentum

Nvidia's Q2 2025 earnings report was a masterclass in execution. The company reported $30.0 billion in revenue, a 122% year-over-year surge, with data center revenue alone hitting $26.3 billion—88% of total revenue. This dominance is driven by the Blackwell architecture, which outperforms competitors in AI training and inference benchmarks. The Blackwell ramp is now a core growth engine, with $27 billion in sales from the product line in May 2024 alone.

Nvidia's guidance for Q3 2025—$32.5 billion in revenue—further underscores its confidence in sustaining this momentum. For ETFs like SMH and SOXX, which hold significant Nvidia weightings (15–20% of assets), this guidance acts as a tailwind. The company's ability to maintain 75% gross margins and reinvest in R&D ensures it remains a bellwether for the sector.

China Clarity: A Double-Edged Sword

The U.S. government's decision to allow H20 chip sales to China under a 15% revenue-sharing agreement has been a pivotal development. While this restores partial access to a market that once contributed $8 billion in Q2 2024, it also introduces risks. Chinese firms like Huawei and Hygon are rapidly closing the gap, with Bernstein predicting a drop in Nvidia's China AI chip market share from 66% in 2024 to 54% in 2025.

For ETFs, this duality creates volatility. On one hand, the H20 chip's 70% gross margin and compatibility with PyTorch/TensorFlow frameworks lock in Chinese cloud providers like Tencent and Alibaba. On the other, rising competition and regulatory scrutiny (e.g., the Cyberspace Administration of China's 2025 inquiry into “backdoors”) could erode market share. Investors must weigh these factors against the broader AI growth narrative.

Blackwell Progress: The Next-Gen Catalyst

The Blackwell architecture is not just a product—it's a paradigm shift. With 10x performance gains over the H100 in LLM training and systems featuring up to 72 GPUs, Blackwell is redefining AI infrastructure. This innovation is critical for ETFs like SOXX, which includes AMD and TSMC, as it drives demand for complementary components like memory and cooling systems.

Nvidia's partnership with cloud providers (AWS, Google Cloud) and manufacturers (GIGABYTE, QCT) ensures Blackwell's rapid adoption. For ETFs, this means sustained demand for AI-related hardware and software, even as China's market evolves. However, the $50 billion shareholder return plan and $4.3 billion Q3 operating expenses highlight the need for disciplined capital allocation—a strength that supports ETFs' long-term viability.

ETF Performance: Correlation and Diversification

High-beta ETFs like SMH and SOXX have historically mirrored Nvidia's stock performance. From 2023 to 2025, SMH delivered 29.6% annualized returns, outpacing the S&P 500. This correlation is expected to persist as long as Nvidia maintains its AI leadership. However, diversification is key. ETFs like XSD, which includes smaller firms like Astera Labs, offer exposure to emerging players but come with higher volatility.

Investors should also consider geopolitical risks. While the U.S.-China chip agreement provides short-term clarity, long-term uncertainties—such as the rise of DeepSeek's AI models—could disrupt the sector. ETFs with lower expense ratios (e.g., SOXQ at 0.19%) may offer better risk-adjusted returns in a volatile environment.

Investment Advice: Balancing Optimism and Caution

For those seeking exposure to the AI boom, high-beta ETFs remain compelling but require a nuanced approach:
1. Prioritize ETFs with strong Nvidia weightings (SMH, SOXX) to capitalize on its AI dominance.
2. Diversify across semiconductor sub-sectors (e.g., memory, manufacturing) to mitigate single-stock risks.
3. Monitor China's regulatory landscape and adjust allocations based on market share trends.
4. Use dollar-cost averaging to smooth out volatility from geopolitical and competitive shifts.

Nvidia's guidance, China clarity, and Blackwell progress collectively paint a bullish picture for the sector. However, investors must remain vigilant against overvaluation risks and the potential for a “bubble” in AI-driven markets. As Jensen Huang's global influence grows, so does the sector's strategic importance—making these ETFs a cornerstone of a forward-looking portfolio.