To The Moon

Nvidia Shares Slip After-Hours as Q3 Outlook Excludes China H20 Shipments

$NVIDIA(NVDA)$   shares dipped in extended trading after the company gave a fiscal third quarter revenue outlook that excluded shipments of H20 chips to China.

The dominant player in chips that power artificial intelligence said it expects revenue of $54 billion, plus or minus 2%, a forecast that does not assume any H20 shipments, it said in a press release after the market closed Wednesday. Adjusted gross margins are seen 73.5%, plus or minus 50 basis points, compared with the average estimate of 73.4%.

The company's H20 shipments have been in a limbo after the Trump administration tightened the screws on semiconductor sales to China in a bid to thwart the Asian super power's technological innovation that could be used in advanced weaponry.

While President Donald Trump recently agreed to allow the shipments in exchange for payment of export taxes, recent reports in Beijing showed that the Chinese government has been calling on local companies to shun the processors from Nvidia on concern that they that the chips could have a backdoor that poses security risks. 

Wall Street was looking to hear from the company on the progress of shipments to China and the potential expansion in the total addressable market that includes AI agents and physical AI agents.

In mid-August, CFRA analyst Angelo Zino wrote in a note that he expects Nvidia's profit margins tied to China sales could take a hit from the tax that the Trump administration decided to charge on the company's shipments of H20 chips into the Asian nation. Still he said the "reentry into the second-largest GPU market to be worth the cost."

While the midpoint of Nvidia's revenue outlook for the third quarter was higher than the $53.46 billion expected by analysts, the uncertainty over sustained sales to the world's second biggest market clouded sentiment.

For the quarter ended July, revenue climbed 56% to $46.74 billion. Analysts, on average were expecting $46.23 billion, according to Bloomberg data. Adjusted earnings rose to $1.05 a share, from 68 cents a year earlier. That's the 10th straight quarter that the figure beat analysts' estimates.

There were no H20 sales to China-based customers in the second quarter, although Nvidia "benefited from a $180 million release of previously reserved H20 inventory related to the sale of approximately $650 million of H20 to an unrestricted customer outside" of the Asian nation, CFO Collette Kress said in a commentary released after the market closed Wednesday.

Data center revenue jumped 56% to $41.096 billion, missing the $41.29 billion expected by analysts, according to Bloomberg consensus.

In May, the company forecast revenue for the quarter to reach $45 billion, plus or minus 2%, reflecting a loss in H20 revenue of about $8 billion due to the recent export control limitations.

The biggest players in the industry are expected to continue building the necessary AI infrastructure. The 13 biggest tech companies in the world have a combined cash pile of $1 trillion, and have access to cheap debt, enough to maintain balance sheet flexibility and ensure resilient credit quality even amid the AI spending surge, Bloomberg Intelligence credit analysts Robert Schiffman and Alex Reid wrote in a note last week.

"The rate of cash generation continues to outpace spending, despite record-high shareholder returns and AI-related capital expenditures, minimizing ratings risk,” the analyst said then.

Before the financial results were released, Nvidia's options were pricing in a move up or down of about 6% in the share price following the chip giant's fiscal second quarter financial report.

The company's board also approved an additional $60 billion share buyback authorization without expiration after returning $10 billion to shareholders through $9.7 billion in repurchases and $244 million of cash dividends.

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