Nvidia results to spotlight fallout of China-U.S. trade war

People take a look to Nvidia''s new products during the Computex 2025 exhibition in Taipei, Taiwan, Wednesday, May 21, 2025. (AP Photo/Chiang Ying-ying, File)

Nvidia’s business in China will be the focus of investors when the AI chipmaker reports earnings on Wednesday, following an unusual deal with the Trump administration and Beijing’s subsequent efforts to stall imports.

Caught in the crossfire of Washington and Beijing’s ongoing trade war, the fate of Nvidia’s China business hangs on where the world’s two largest economies land on tariff talks and chip trade curbs.

The artificial intelligence chip pioneer recently agreed to pay the U.S. federal government 15 per cent of the sales it made it China in exchange for export licenses, a move that has drawn bipartisan criticism.

Beijing - despite huge appetite for Nvidia’s chips in China - has urged domestic companies to limit purchases over apparent security concerns.

Reports have emerged that Nvidia has told some suppliers to suspend production of its China-special H20 chips. But Reuters has reported that Nvidia is developing a new and more powerful chip for China.

“We’ve got to get clarity on these two governments first, whether China wants the chips and whether the administration is going to allow it,” said Jamie Meyers, senior analyst at Nvidia shareholder Laffer Tengler Investments. “And if so, how is that going to work?”

Last year, China accounted for 13 per cent of Nvidia’s revenue. For the second quarter ended July 2025, many analysts did not factor in any revenue from H20 sales in that country given the US approval came late in the quarter, while China’s pushback complicates forecast calculations for the year.

In May, Nvidia had said the curbs would shave off US$8 billion in sales from the July quarter. The curbs led to a $4.5 billion charge in the previous three-month period.

Overall, the company is expected to report that second-quarter revenue jumped 53.2 per cent to $46.02 billion, according to LSEG data, a far cry from the triple-digit growth it witnessed for many quarters.

But analysts said the overall AI chip business is booming, with strong demand pouring in from tech giants such as Meta and Microsoft, who have expanded their capital budgets.

Still, positive commentary on demand from CEO Jensen Huang could boost AI stocks that have sold off recently on worries that investors may be valuing them too highly.

Nvidia shares have gained more than a third so far in 2025, a smaller gain for the period than the previous two years. This still outpaces a more than 15 per cent gain in the broader chip index and the benchmark S&P 500 Index’s near 10 per cent year-to-date rise.

For the third quarter, analysts expect Nvidia to guide to revenue of $52.96 billion, up 51 per cent year-on-year.

About $6 billion of that could come from China, analysts from Piper Sandler had estimated with further growth at a 12 per cent-15 per cent rate.

But Nvidia could take a five to 15 percentage point hit to gross margins on China-bound chips due to the federal deal, with Bernstein analysts estimating it cutting about one point from Nvidia’s overall margins.

The company’s adjusted gross margin is expected to drop nearly four percentage points to 72.1 per cent in the second quarter. In the October quarter, gross margin is expected to contract by nearly two points to 73.2 per cent.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Sayantani Ghosh and Aditya Soni)