Nvidia results to spotlight fallout of China-US trade war

Caught in the crossfire of Washington and Beijing's ongoing trade war, the fate of Nvidia's China business hangs on where the world's two largest economies land on tariff talks and chip trade curbs.

The artificial intelligence chip pioneer recently agreed to pay the U.S. federal government 15% of the sales it made it China in exchange for export licenses, a move that has drawn bipartisan criticism.

Beijing - despite huge appetite for Nvidia's chips in China - has urged domestic companies to limit purchases over apparent security concerns.

Reports have emerged that Nvidia has told some suppliers to suspend production of its China-special H20 chips. But Reuters has reported that Nvidia is developing a new and more powerful chip for China.

Last year, China accounted for 13% of Nvidia's revenue. For the second quarter ended July 2025, many analysts did not factor in any revenue from H20 sales in that country given the US approval came late in the quarter, while China's pushback complicates forecast calculations for the year.

In May, Nvidia had said the curbs would shave off $8 billion in sales from the July quarter. The curbs led to a $4.5 billion charge in the previous three-month period.

Overall, the company is expected to report that second-quarter revenue jumped 53.2% to $46.02 billion, according to LSEG data, a far cry from the triple-digit growth it witnessed for many quarters.

But analysts said the overall AI chip business is booming, with strong demand pouring in from tech giants such as Meta and Microsoft, who have expanded their capital budgets.

Still, positive commentary on demand from CEO Jensen Huang could boost AI stocks that have sold off recently on worries that investors may be valuing them too highly.

Nvidia shares have gained more than a third so far in 2025, a smaller gain for the period than the previous two years. This still outpaces a more than 15% gain in the broader chip index and the benchmark S&P 500 Index's near 10% year-to-date rise.

For the third quarter, analysts expect Nvidia to guide to revenue of $52.96 billion, up 51% year-on-year.

About $6 billion of that could come from China, analysts from Piper Sandler had estimated with further growth at a 12%-15% rate.

But Nvidia could take a 5 to 15 percentage point hit to gross margins on China-bound chips due to the federal deal, with Bernstein analysts estimating it cutting about one point from Nvidia's overall margins.

The company's adjusted gross margin is expected to drop nearly 4 percentage points to 72.1% in the second quarter. In the October quarter, gross margin is expected to contract by nearly two points to 73.2%.