When Nvidia reports its quarterly earnings on Wednesday, investors will be looking for concrete answers on how the company plans to overcome a projected $5.5 billion charge resulting from Trump administration restrictions on its H20 chip sales to China. The export limits imposed last month have forced the AI chip giant to walk away from approximately $15 billion in potential Chinese sales, according to recent statements from CEO Jensen Huang.
The impact on Nvidia’s financial performance could be substantial, with analysts projecting its adjusted gross margin will drop more than 11 percentage points to 67.7%. Wedbush analysts suggest the write-downs related to H20 shipments could translate to a gross margin hit of up to 12.5%. Looking forward, Susquehanna estimates the lost revenue could amount to as much as $4.5 billion per quarter for the remainder of the year, while Wedbush projects a quarterly impact of $3 billion to $4 billion.
Despite these challenges, there are potential bright spots on Nvidia’s horizon. Washington has indicated it will modify a Biden-era export restriction called the “AI diffusion rule,” potentially opening new markets for the company in regions like the Middle East. Additionally, after months of concerns that AI investment from major cloud providers was slowing, Nvidia investors have found reassurance in recent spending commitments from companies including Google. The key question remains whether these new opportunities can sufficiently offset the loss of Nvidia’s significant China business, which accounted for 13% of its revenue last year.