Nvidia earnings to provide a glimpse at the effects of the US-China trade war

By Clare Duffy, CNN

New York (CNN) — For several whirlwind weeks, Nvidia has become a bargaining chip in the US-China trade war. Now, the American chipmaker is about to provide the latest look at how its business has been affected by President Donald Trump’s shifting trade policies.

Nvidia is set to report earnings for the quarter that ended in July on Wednesday afternoon. The company warned in May that it expected to take an $8 billion hit to revenue because of export controls on shipments to China.

However, Wall Street analysts anticipate the chipmaker will continue its trend of remarkably strong results. Analysts expect Nvidia to report $46 billion in revenue and $24.7 billion in net income — an approximately 50% increase for both measures compared to a year ago, according to financial data firm FactSet.

That’s an outcome most executives would cheer at, but it would also mark a slowdown from the 122% year-over-year revenue growth and 168% year-over-year profit growth the company reported in the same period last year.

A slowdown for Nvidia, seen as the bellwether for the larger AI ecosystem, could fuel concerns about a possible correction in the market. Earlier this month, OpenAI CEO Sam Altman warned of an “AI bubble,” and MIT researchers found most companies aren’t actually making any money from implementing AI. (Although, in fairness, companies also don’t tend to go on doubling their earnings quarter after quarter forever.)

Still, Wall Street seems optimistic. Nvidia CEO Jensen Huang has a close relationship with Trump and the president did a recent about-face on advanced chip sales to China. There are also reports that Nvidia has a new China-specific chip in the works.

“We believe Nvidia earnings on deck is another positive catalyst for tech stocks that will further remind investors this is still only the bottom of the 2nd inning” in the game that is the AI revolution, Wedbush analyst Dan Ives said in an email on Monday.

Nvidia shares (NVDA) have risen more than 30% since the start of this year. In July, it became the world’s first public company valued at $4 trillion.

The China flip-flop

Earlier this year, the Trump administration cracked down on sales of Nvidia’s H20 AI chip to China. This effectively cut off the chipmaker’s business with the country, which last year made up around 13% of the company’s sales, after it had developed the product specifically to comply with earlier trade restrictions. In the first quarter, Nvidia said the restrictions cost it around $7 billion in charges from unfulfilled sales and lost revenue.

Last month, Nvidia said it would restart sales of the H20 after receiving approval from the White House. And weeks later, Nvidia, along with fellow chipmaker AMD, agreed to pay the US government 15% of its chip sales to China in exchange for an export license, an unprecedented quid pro quo that arose after a meeting between Huang and Trump.

Huang has argued that if American technology companies are restricted from selling to China, Chinese developers will simply create their own alternatives, which could undermine the US in the AI race.

The agreement is poised to restore Nvidia’s access to the China market. But earlier this month, a social media account connected to Chinese state media questioned whether Beijing will allow the chips to be sold because of concerns around security risks. (Nvidia has repeatedly denied that its products have backdoors or spyware.)

Now, Nvidia is said to be working on a new, more powerful AI chip for China, believed to be called the B30, that it hopes will pass muster with Beijing while remaining compliant with US export restrictions, according to reports from Reuters and the Wall Street Journal.

“We evaluate a variety of products for our roadmap, so that we can be prepared to compete to the extent that governments allow,” an Nvidia spokesperson told CNN when asked for comment on the reports. “Everything we offer is with the full approval of the applicable authorities and designed solely for beneficial commercial use.”

Investors will likely be hoping for some insight from Huang about the state of the project on Wednesday.

Paul Meeks, managing director of investment banking firm Freedom Capital Markets, said Nvidia’s shares “could be muddied because of Trump’s on-again, off-again export controls,” in the short term.

“I bet that there’ll be a dip in the stock, not necessarily after they report, but sooner or later & it’ll probably be a result of Chinese trade talks & not the company’s fundamentals at all,” he said in emailed commentary Tuesday.

However, given that demand for Nvidia’s products across the tech sector remains high, Meeks said he believes the company will “modestly beat analyst estimates & will give an optimistic long-term future guide” on Wednesday.

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