Nvidia, a leading player in artificial intelligence, reported earnings that exceeded expectations, yet its shares fell due to concerns about a potential AI chip spending bubble and stagnant business in China. The company, based in California, achieved a profit of $26.4 billion on record revenue of $46.7 billion in the last quarter, fueled by strong demand for chips from tech giants for AI data center computing. However, revenue from Nvidia’s Data Center products, including its sought-after graphics processing units, dropped by 1% from the previous quarter. This decline was largely due to a $4 billion reduction in sales of H20 chips, which are specialized processors designed for the Chinese market. Nvidia projected $54 billion in revenue for the current quarter, excluding H20 sales. Despite high demand for its GPUs, investors are questioning the sustainability of the massive investments in AI. Nvidia’s shares dipped over 3% in after-market trading. The company is also navigating geopolitical tensions, with US export restrictions impacting its operations in China. President Donald Trump announced that Nvidia would pay the US 15% of its revenues from certain AI chip sales to China, labeling the H20 chips as “obsolete.” Meanwhile, Beijing has raised national security concerns and is encouraging reliance on local semiconductor suppliers. Nvidia’s CEO, Jensen Huang, emphasized the importance of US companies competing in China and advocated for American tech leadership in the AI sector. Amidst worries of an AI spending bubble, Nvidia remains a key indicator of the AI market’s health.
Why did Nvidia’s shares drop despite surpassing earnings expectations?
