Nvidia Q2 Earnings: $8B Loss From China Ban

Nvidia (NVDA) is set to report its second-quarter earnings after market close on Wednesday, marking the final report in Big Tech’s earnings season. Investors are closely monitoring the semiconductor giant as it navigates regulatory pressures in China, ongoing AI demand, and supply chain constraints. This earnings release is widely expected to provide critical insights into how Nvidia balances explosive growth with geopolitical and operational challenges.

Nvidia has emerged as a dominant player in the AI chip market, driven by demand for high-performance GPUs for data centers and cloud computing. Analysts expect revenue to reach $46.2 billion, with adjusted earnings per share (EPS) projected at $1.01, reflecting continued strength but slightly moderated growth compared to previous quarters.

China Chip Fee: $8 Billion Impact

The biggest regulatory challenge for Nvidia this quarter comes from the 15% fee imposed on chip sales to China. The policy, announced by the Trump administration in August, follows a series of changes:

• April 2025: Sale of Nvidia chips to China banned.

• July 2025: Ban lifted to allow trade.

• August 2025: 15% levy on all China sales introduced.

Nvidia confirmed during its Q1 earnings call that this fee could result in an $8 billion hit to Q2 revenue. While significant, the company is navigating the situation cautiously, working with both U.S. regulators and Chinese authorities to maintain market access.

Former President Trump also indicated a potential 100% tariff on semiconductor imports unless production occurs domestically, but Nvidia is expected to be exempt due to existing U.S. manufacturing operations.

This regulatory context is critical for investors, as China represents a substantial portion of Nvidia’s AI chip market. The fee is likely to affect margins in Q2 and potentially influence guidance for Q3, depending on how the company reports revenue tied to Chinese customers.

Market Performance and Valuation

Nvidia has been one of the strongest-performing tech stocks over the past 12 months. Shares are up 35% year-to-date and 40% over the last year. In July, Nvidia became the first company to surpass a $4 trillion market capitalization, reflecting both investor enthusiasm for AI chips and the company’s dominant market position.

For Q2, Bloomberg consensus estimates project adjusted EPS of $1.01 and revenue of $46.2 billion. In the same quarter last year, Nvidia reported $0.68 EPS and $30 billion revenue, reflecting year-over-year growth of 49% in EPS and 53% in revenue. While growth has moderated from the peaks seen during the initial AI surge, analysts note that Nvidia’s market position remains strong.

Evercore ISI analyst Mark Lipacis projects that Nvidia’s growth could stabilize around 50%, which may attract momentum investors and support valuation expansion. This growth stabilization reflects a maturing market for AI chips while maintaining robust demand in cloud data centers and gaming segments.

Revenue Breakdown: Data Center and Gaming

Nvidia’s data center business remains the primary growth engine. For Q2, data center revenue is expected to hit $41.2 billion, up from $26.2 billion in the prior-year period. This segment encompasses GPUs for AI workloads, cloud computing, and enterprise server applications. Demand continues to be driven by hyperscale cloud providers, AI startups, and enterprises integrating AI solutions into their operations.

The gaming segment, Nvidia’s second-largest revenue contributor, is projected at $3.8 billion. This includes both consumer GPUs and gaming platforms. While growth in gaming has slowed relative to AI-driven data center demand, Nvidia continues to innovate with new GPU launches and performance optimizations.

Investors will also watch for guidance on other segments, including professional visualization and automotive chips, though these are smaller contributors to overall revenue.

Product Updates: GB200 and Blackwell Ultra

A key focus for Nvidia this quarter is the continued ramp-up of its GB200 superchip and the upcoming Blackwell Ultra architecture. The GB200 is critical to Nvidia’s AI server business, offering high-throughput capabilities that are attracting hyperscale customers.

KeyBanc Capital Markets analyst John Vinh noted that manufacturing yields for GB200 at server OEMs have improved to approximately 85%. Rack shipments are expected to reach 15,000–17,000 units by the end of the year, with full-year shipments potentially hitting 30,000, above prior estimates of 25,000.

The Blackwell Ultra chip, expected to launch later this year, represents Nvidia’s next-generation AI hardware. Analysts anticipate that its performance will further solidify Nvidia’s dominance in AI workloads, supporting continued revenue growth and maintaining high margins.

Analyst Commentary

Analysts remain broadly positive about Nvidia’s near-term outlook, though cautious about China-related risks.

• Evercore ISI (Mark Lipacis): Growth may stabilize around 50%, attracting momentum investors.

• KeyBanc (John Vinh): GB200 yields and rack shipments on track, but Q3 guidance could fall short if China revenue is excluded.

• Wedbush (Matt Bryson): Price target raised from $175 to $210 due to strong shipment and demand feedback.

• Baird (Tristan Gerra): Positive EPS and revenue projections for Q2 based on GB200 sales.

Analysts emphasize that Nvidia’s position in AI server infrastructure gives it an advantage over competitors, capturing a disproportionate share of enterprise and cloud AI demand.

China Market Challenges

Nvidia’s access to China remains a central concern. The company is developing a Blackwell-based chip specifically for the Chinese market but must obtain U.S. approval before sales.

Recent warnings from Chinese regulators have suggested potential “backdoor” security risks in Nvidia chips. Nvidia has denied these claims and is actively engaging with authorities to resolve concerns. How quickly and effectively Nvidia addresses these issues will influence revenue guidance for the coming quarters.

The China market represents both a revenue opportunity and a regulatory risk. Investors will be closely watching for any updates on policy changes, approvals, or additional tariffs that could affect Nvidia’s growth in the region.

Key Points for Investors

• China sales fee: Nvidia expects a ~$8B revenue impact from the 15% levy on shipments into China. Guidance will show if the company plans to absorb or pass on the cost.

• AI chip rollout: Updates on GB200 shipment scaling and Blackwell Ultra launch will indicate whether Nvidia can meet hyperscale demand into 2025.

• Revenue mix: Data center sales are projected near $41B (vs. $26B last year), while gaming is forecast at $3.8B, signaling dependence on one major segment.

• Manufacturing capacity: GB200 rack yields have improved to ~85%. Investors will watch if shipments hit the 15K–17K rack target by year-end.

• Policy shifts: U.S. tariffs, the 15% fee, and Chinese warnings about Nvidia chips all add uncertainty around forward guidance.

Nvidia faces a complex quarter with high expectations from investors and analysts alike. The $8 billion impact from China’s new chip fee, ongoing AI demand, and the ramp of next-generation chips like Blackwell Ultra will dominate discussions during the earnings call.

While regulatory uncertainties could affect short-term guidance, Nvidia’s market leadership in AI infrastructure, data center GPUs, and gaming remains intact. How the company manages China sales, manufacturing yields, and product rollouts will likely determine its stock trajectory in the next several quarters.

Overall, Q2 represents a pivotal moment for Nvidia, balancing robust AI-driven growth with the operational realities of geopolitical and market challenges.

Also Read: Nvidia Designing New AI Chip for China Under U.S. Export Rules