Nvidia (ticker: NVDA), the leading supplier of computer chips for the artificial intelligence (AI) industry, has been capturing Wall Street’s attention with its strong earnings over the past two quarters. However, recent concerns have arisen regarding the impact of export rules to China on Nvidia’s future performance.
According to an anonymous source cited by The Wall Street Journal, Nvidia currently has $5 billion worth of orders from China that could be jeopardized by the latest U.S. regulations on critical technology exports. The U.S. Commerce Department recently announced stricter rules in 2022 aimed at limiting China’s access to advanced technologies, particularly AI-related chips like those manufactured by Nvidia. These chips are now prohibited from being exported without a license, and even sales below that threshold require government notification, which could potentially result in individual sales being banned.
Initially, Nvidia downplayed the concerns surrounding its sales to China, pointing to strong global demand for its chips and suggesting that any impact on financial results would be insignificant. However, analysts are adopting a more cautious stance, particularly when considering the immense growth potential of the Chinese market in the long term.
The Journal’s report suggests that these new regulations could force Nvidia to cancel billions of dollars’ worth of orders from China in the coming year. Consequently, there is now a baseline estimation of a $5 billion hit to the company’s finances in 2024.
Nvidia Faces Downside Risk Amidst China Order Wipeout
Analysts surveyed by FactSet are predicting that Nvidia, the renowned technology company, may face significant downside risk to its revenue estimates for its fiscal year ending in January 2025. The expected revenue is $81.3 billion, with $63.1 billion coming from its data center business. However, if $5 billion in China orders is wiped out, this could have a detrimental impact on Nvidia’s outlook.
Investors who are accustomed to Nvidia consistently raising its outlook may be disappointed when the company reports its results in late November. The coming quarter, spanning from November to January, might face additional challenges due to export rules’ immediate effect on scheduled deliveries for the following year. Furthermore, any long-term guidance may also be influenced by these regulations.
Nvidia has yet to comment on the situation in response to a request made by ’s. In premarket trading, the company’s shares fell by 0.7%, indicating a lag compared to futures tracking the S&P 500 and Nasdaq indexes, both of which were higher.
According to a report by the Journal, Nvidia had already completed the delivery of advanced chips to China earlier this year. The company had aimed to fulfill orders for 2024 before the new export rules came into effect. However, the government intervened and notified Nvidia that the export restrictions would be effective immediately, jeopardizing large orders from major Chinese companies like Alibaba (BABA) and Baidu (BIDU).
After experiencing significant success driven by the AI boom, Nvidia is now encountering potential obstacles due to geopolitical tensions and tech regulations.