Nvidia Corporation struggles against the unprecedented intensity of U.S. government scrutiny. What’s got them worried is its adversaries’ potential use of its artificial intelligence (AI) chips for military applications. The Semiconductor Sequoia prepares to release its quarterly earnings in the face of enormous headwinds. Revenue is projected to expand massively due to robust worldwide demand for AI infrastructure, even with potential export restrictions on the horizon, analysts say.
The U.S. government has already limited the export of advanced AI chips to China and other countries. They used national security worries to justify these draconian measures. Nvidia, along with competitors like Advanced Micro Devices (AMD), finds itself under heightened examination due to the potential use of its chips in creating advanced supercomputers for military purposes.
On April 9, Nvidia got a surprise letter from the Trump administration, requiring the company to obtain an export license for its H20 chip. This chip is a second-generation version of that Hopper processor. Unlike typical foreign deployment mechanisms, it was expressly tailored to the Chinese market in order to avoid earlier U.S. restrictions. The situation evolved when the Trump administration rescinded the “AI diffusion rule” in May, which had previously placed stricter controls on exporting AI chips to China and other regions.
Nvidia CEO Jensen Huang had a very candid assessment of what these restrictions meant. He blasted the idea of limiting access to Nvidia’s technology. He is concerned that it could drive Chinese engineers to develop their own domestic semiconductor solutions.
“Restricting exports of Nvidia’s chips to China will motivate engineers to develop their own processors,” – Jensen Huang
Huang cautioned this advancement will further strengthen China’s AI semiconductor ecosystem and again threaten U.S. leadership in technology. His comments underscore the tricky line between protecting U.S. national security and encouraging innovation in U.S. semiconductor manufacturing.
While all of this is going on, Nvidia has continued to boast record years of growth in its graphics processor sales. The demand for AI infrastructure has driven a surge in revenue, with analysts predicting a 53% growth for Nvidia in the current quarter. For the three-month period ending in April, analysts expect Nvidia to report a remarkable 66% revenue growth, reaching an estimated $43.28 billion.
Nonetheless, the mother of all uncertainty hangs over the H20 chip’s potential market performance, stemming from the recent introduction of new export license requirements. BNP Paribas analyst David O’Connor just flagged perhaps the biggest red flag. He explained that this inventory write-off will contribute to an estimated $15 billion revenue loss over the next twelve months.
“This inventory write-off implies a $15 billion H20 revenue hit on a rolling 12-month basis,” – David O’Connor
Analysts predicted a frenzy of interest with Nvidia’s most recent earnings call. They expect talks around export policies to be overshadowed.
“There is a conversation to be had about what will eventually be allowed in China — but probably not on this earnings call,” – Morgan Stanley analysts
As Nvidia continues to innovate, it will need to navigate a rocky road ahead, filled with the realities of regulatory restrictions and competitive forces. The firm’s focus is on capturing the increasing global market demand for AI software solutions. Meanwhile, it’s trying to steer through the rocky shoals of international trade and national security scuttlebutt.