Nvidia, the leading provider of graphics processing units (GPUs) in the AI market, is expected to face repercussions due to the significantly expanded US export restrictions on its sales to China. The impacted chips constituted almost 25% of Nvidia's datacenter sales in recent quarters.
On Tuesday, chip designer Nvidia anticipated a significant decline in fourth-quarter sales in China, a crucial revenue source, due to new US regulations. However, the company projected overall revenue to surpass Wall Street targets as supply-chain challenges alleviate. Nvidia, known for its dominance in the AI graphics processing units (GPUs) market, is poised to be impacted by expanded US export controls on its sales to China, with the affected chips representing nearly a quarter of the company's recent datacenter sales.
Chief Financial Officer Colette Kress acknowledged that export controls could harm Nvidia's China business, with uncertainties about the long-term impact. She confirmed the development of compliant chips for China but noted they won't significantly contribute to fourth-quarter revenue. Despite a year-to-date stock increase of over 240%, Nvidia's stock slipped 1.5% in after-hours trading. The company also faces risks in Israel due to the conflict in Gaza, where its networking business is based, although sales from this unit, crucial for AI supercomputers, rose 155% from a year ago, exceeding a $10 billion annualized run rate.
Nvidia faces operational challenges as a significant number of its Israeli employees are called up for military duty, potentially impacting future operations.
Despite projecting strong adjusted gross margins of 75.5% for Q4, exceeding analysts' estimates, the company's China issues may pose a threat to maintaining these margins.
Concerns arise about how sales restrictions in China will be offset in other regions, raising questions about the sustainability of Nvidia's high margins.
Nevertheless, Nvidia remains optimistic about improved supply for its AI chips, securing factory priority through prepayment to contract chipmakers like TSMC.
AI server demand soars with a projected 40% increase in shipments this year, driven by applications like OpenAI's ChatGPT.
Nvidia anticipates current-quarter revenue at $20 billion, contrasting with the $17.86 billion analyst estimate. In the adjusted third quarter, revenue tripled to $18.12 billion, exceeding the $16.18 billion forecast. Data center revenue rose 41% to $14.51 billion, and gaming revenue increased 15% to $2.86 billion. Earnings per share reached $4.02, surpassing the $3.37 estimate.
In response to U.S. export rules, Nvidia introduced three new products for the Chinese market, though concerns about resource allocation and potential bans persist, according to analyst Jacob Bourne.
U.S. officials unveiled new restrictions in October, with ongoing updates as needed.
Last week, the company introduced the H200, a new AI chip outperforming Nvidia's current top processor, the H100. The H200 boasts additional high-bandwidth memory, a crucial component for swift data processing.
Competitor Advanced Micro Devices previously highlighted the abundant high-bandwidth memory on one of its AI chips.
Tech giants like Alphabet's Google, Amazon.com, and Microsoft not only use Nvidia hardware but also develop their own AI chips in-house, allowing customization for specific AI needs.
Microsoft recently unveiled two custom-designed computing chips, including one for large language models.
As U.S. restrictions limit access to Nvidia chips, Huawei's AI chip gains popularity among Chinese firms.
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