There is certainly no denying that the U.S.-China trade restrictions have impacted the stock market considerably. Nvidia is a well-known stock since its high-end GPUs are in high demand due to AI apps’ growing popularity. Nvidia said the U.S. government told them they needed a license to sell China’s best-selling AI processor, the H20. This would prevent Chinese purchases. This means Nvidia’s next quarterly financial results will be hurt hard, so its shares slumped 6.9%. Read on to find out more.
AI – The Lowdown
Banks are considering AI to hedge their risks, manufacturers to better quality control and inventory management, retailers to boost marketing, and the military to improve battlefield operations. Most firms are still investing in AI, but there are concerns that expenditure may stall if the economy worsens and computers catch up to demand.
These concerns have grown since DeepSeek, a Chinese competitor to OpenAI’s ChatGPT and Google’s Gemini, launched. DeepSeek reportedly cost $6 million and used older chips instead of Nvidia’s more expensive Blackwell line-up. Due to additional tariffs that may raise prices, analysts are decreasing their economic growth estimates. Big spenders like Amazon, Microsoft, and Google may reconsider AI spending.
What to Expect
Nvidia’s stock price was already falling because of these issues, but last month, it learnt that U.S. restrictions will make selling its goods in China harder. AI development is global, but the U.S. is growing concerned that China’s research could lead to national security threats. Nvidia’s China sales have suffered because the U.S. government is making it difficult for China to buy next-generation technologies. China historically accounted for 20% of Nvidia’s data centre revenues. Nvidia makes much of its money selling its H20 AI system in China, which doesn’t match regulatory performance standards.
H20 may have sold $12–15 billion in 2024. China’s Alibaba, Tencent, and ByteDance allegedly bought $16 billion in H20 chips in Q1. Nvidia’s China sales are projected to plummet due to Trump’s H20 restriction, lowering its stock value. Due to this, Nvidia may lose $5.5 billion, which Bank of America analysts call “indicative of the high probability of H20 restriction/low probability of future licenses.”
Bank of America expects the new regulation to have a 20% hit to Q1 GAAP EPS, and a 5%–8% sales and 6%–10% EPS impact under two scenarios of H20 at 6% or 10% of FY26/CY25E sales. Experts now think the share price-to-earnings ratio is close to 20, lower than the stable 23 to 25 range.
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