Nvidia Shares Surge in Pre-Market Trading following announcement of Record-Breaking Revenue from the Chipmaker.
Nvidia's First-Quarter Revenue Surges, Yet China Export Curbs Pose Significant Challenge
In premarket trading on Thursday, Nvidia shares soared by 6%, riding high on the heels of the technology firm's first-quarter revenue that surpassed analyst predictions. Despite the positive momentum, the Silicon Valley giant disclosed that it is losing billions in potential revenue as a consequence of export restrictions on its most advanced chips bound for China.
Nvidia's record-breaking sales, announced Wednesday, were partially undermined due to the U.S.'s limits on exporting the company's premier AI chips to the world's most populous nation. In a statement, CEO Jensen Huang revealed that the imposed restrictions would shave about $8 billion off the company's second-quarter sales, a substantial amount given its recent quarterly revenue of over $40 billion.
In addition to the lost sales, Nvidia incurred an inventory write-down of $4.5 billion for unsold H20 chips designed for the Chinese market. With no alternative buyers for these chips, the company is shouldering the financial burden themselves. According to the company's financial report, its gross margin was 61% for the quarter, figures that would have reached 71.3% had it not been for charges related to the China impact.
Even with the setback in China, global demand for Nvidia's AI products remains resilient. The company reported a 73% year-over-year increase in data center revenue and strong sales for new systems based on the Blackwell platform. Nvidia is also making strides to diversify its market by modifying its chips to potentially regain access to the Chinese market under revised regulations.
While Nvidia faces a significant reduction in its addressable market in China, major server vendors like Dell and HP Enterprise may also feel indirect impacts from the chip export restrictions. In a note on Friday, JPMorgan analysts said that the results provide a positive read-through for the results and outlooks of server vendors, as demand and supply of Nvidia's newest products continue togrow. Dell will report its results after the bell on Thursday, while HP Enterprise is set to release its quarterly figures on June 3.
Investors will have the opportunity to hear from Nvidia’s CEO, Jensen Huang, twice more in the upcoming month. He will participate in an industry conference and Nvidia's annual investor day on June 25. As of Thursday's premarket trading, Nvidia shares were trading at $142.81, poised for their highest opening since late January.
Nvidia, despite the boom in its first-quarter revenue and the resilient global demand for its AI products, has encountered a financial challenge due to the export restrictions on its AI chips to China, which is anticipated to cost the company around $8 billion in the second quarter. Meanwhile, the imminent approval of an Initial Coin Offering (ICO) in the field of finance could potentially provide alternative revenue streams for companies impacted by such export restrictions, allowing them to diversify their market and continue trading in the technology sector.
