Nvidia's Q1 Earnings Report: A Decisive Moment for Tech Stocks

Nvidia is set to report Q1 earnings, with a projected net income of $19bln and revenue of $43bln, up 31% and 66% YoY, respectively. The focus will be on supply of Blackwell chips and profit margins, which are expected to return to mid-70s by the end of the year. The earnings report has the potential to be complicated due to US export restrictions on advanced semiconductors to China.

Nvidia (NVDA) is set to report its first-quarter earnings on Wednesday, with projected net income of $19 billion and revenue of $43 billion, representing a 31% and 66% year-over-year (YoY) increase, respectively. The focus will be on the supply of Blackwell chips and profit margins, which are expected to return to the mid-70s by the end of the year. The earnings report could be complicated by U.S. export restrictions on advanced semiconductors to China.

Nvidia faces a $5.5 billion charge and $15 billion in lost China sales due to U.S. export curbs on its H20 chip, with quarterly revenue losses estimated at $3 billion to $4.5 billion [1]. Despite this, the company projects a 66.2% revenue surge to $43.28 billion, with adjusted gross margins expected to drop to 67.7%, impacted by up to 12.5% from H20 write-downs [1]. New opportunities in the Middle East, including a deal for 18,000 Blackwell chips in Saudi Arabia, may help offset China losses, though near-term revenue contributions are expected to be small [1].

Nvidia's revenue from China is set to hit $6.2 billion in the first quarter, accounting for over 14% of total revenue, according to consensus estimates [2]. This is a 150% increase from the prior year, while U.S. revenue is projected to rise a more modest 60% to $21.6 billion [2]. Overall revenue is set to hit $43.3 billion, analysts estimate [2]. Nvidia CEO Jensen Huang has described the export ban on its H20 chips as "deeply painful" and said the company has lost $15 billion in sales as a result [2].

Despite the challenges, Nvidia is expected to report robust first-quarter revenue of $43.28 billion, a 66.2% surge year-over-year, according to LSEG data [1]. This growth reflects the company’s dominant position in the AI chip market, driven by demand from major cloud providers like Alphabet’s Google, which have reaffirmed their commitment to AI infrastructure investments [1]. However, the days of consistently exceeding Wall Street expectations may be waning. In its last fiscal year, Nvidia surpassed quarterly revenue estimates by an average of 4.9%, and the prior year saw beats of 12.5% [1].

The China restrictions have broader implications for Nvidia’s competitive landscape. Huang described the U.S. semiconductor curbs as “a failure,” arguing they have accelerated the development of homegrown chips by Chinese rivals like Huawei [1]. To navigate these challenges, Nvidia is reportedly developing a new AI chipset for China based on its cutting-edge Blackwell architecture [1].

Investor sentiment remains cautious, with concerns about rising AI infrastructure costs and the sustainability of Nvidia’s growth trajectory [1]. Wedbush analysts emphasized that the key question for Nvidia’s earnings is whether the company can boost sales in other regions to compensate for the loss of its H20 and broader China business [1]. D.A. Davidson analyst Gil Luria told Reuters that China remains the “biggest swing factor” this quarter, highlighting the high stakes for Nvidia as it navigates a complex geopolitical landscape amid intensifying global competition in the AI chip market [1].

Nvidia is poised to capitalize on new opportunities in regions like the Middle East, where loosened U.S. export controls under a modified Biden-era AI diffusion rule could unlock growth [1]. Notably, Nvidia has secured a deal to supply 18,000 Blackwell chips to a Saudi Arabian startup backed by the country’s sovereign wealth fund, part of broader U.S. trade agreements with Gulf nations [1]. While analysts expect the Middle East’s revenue contribution to remain modest in the near term, these developments signal Nvidia’s ability to pivot toward emerging markets to offset losses in China [1].

References:
[1] https://wallstreetpit.com/127091-nvidias-earnings-in-focus-as-u-s-export-curbs-cloud-outlook/
[2] https://finance.yahoo.com/news/nvidia-china-revenue-set-to-cross-6-billion-in-q1-as-investors-brace-for-export-ban-impact-170141062.html