California: AI powerhouse Nvidia reported quarterly earnings Wednesday that surpassed expectations, but its shares fell due to concerns about a potential AI chip spending bubble and the company's stalled business operations in China.
According to Lao News Agency, the California-based firm posted a profit of $26.4 billion on record revenue of $46.7 billion in the recently ended quarter, driven by intense demand for chips from major tech companies powering AI datacenter computing. While overall revenue significantly increased year-over-year, revenue from Nvidia's Data Center compute products, including its highly sought-after graphics processing units (GPUs), declined by 1 percent from the previous quarter.
The decline was attributed to a $4 billion decrease in sales of H20 chips, specialized processors designed by Nvidia for the Chinese market, as highlighted in the earnings report. For the current quarter, Nvidia projected $54 billion in revenue but stated that its forecast does not account for any H20 sales.
Nvidia's high-end GPUs continue to be in high demand from tech giants building data centers for artificial intelligence applications. However, investors are questioning whether the substantial AI investments are sustainable. Emarketer analyst Jacob Bourne noted, "The data center results, while massive, showed hints that hyperscaler spending could tighten at the margins if near-term returns from AI applications remain difficult to quantify." He also remarked on the impact of US export restrictions on domestic chipmaking in China.
Nvidia shares fell slightly more than 3 percent in after-market trading.
Earlier this month, President Donald Trump confirmed that Nvidia would pay the United States 15 percent of its revenues from sales of certain AI chips to China. Trump described Nvidia's H20 chips as "obsolete," despite their previous targeting under export restrictions. In response, Beijing expressed national security concerns about Nvidia chips and urged Chinese businesses to rely on local semiconductor suppliers instead.
Nvidia developed the H20 specifically for export to China to address US concerns that its top-tier chips could be used for weapons development or AI applications in the rival nation. Nvidia's chief executive Jensen Huang commented on the China market, estimating it to be a $50 billion opportunity for Nvidia this year and noting, "We have supply ready to ship."
Huang emphasized the importance of American tech companies competing in China and advocated for the sensibility and significance of leading the AI race to establish the American tech stack as the global standard.
The earnings report comes amid market worries about an AI spending bubble that could burst and impact the chip giant's fortunes. Nvidia, serving as a bellwether for the AI market, became the first company to reach $4 trillion in market value last July. Huang observed an "enormous amount of interest in AI and demand for AI right now," with top cloud computing service providers projected to spend around $600 billion on AI infrastructure this year, suggesting Nvidia could benefit significantly from this spending.