Nvidia's stocks skyrocket post-earnings release, surpassing expectations despite imposed export controls on chips to China.
Nvidia's Shares Soar in Extended Trading as Q1 Earnings Excelled Expectations, Despite Challenges Arising from China Regulations
In an impressive display, Nvidia's shares experienced a significant surge during post-market hours as the tech giant outperformed analysts' projections for the first quarter of its fiscal year 2026. The positive earnings report and an upbeat outlook for the current quarter were, however, tempered by the impact of regulations on sales to China.
Nvidia reported earnings that surpassed market expectations and offered a positive forecast for the upcoming quarter. The achievement comes despite an estimated $8 billion loss due to US chip export restrictions that negatively affected sales to China. The company's share price jumped by nearly 5% in after-hours trading, nearing an 8% gap from its all-time high recorded in January. With this increase, the stock is on course to return a positive yield for the year. Currently, Nvidia stands as the world's largest corporation, surpassing competitors like Microsoft and Apple in terms of market capitalization.
"Investors were eager for any indications of Nvidia overcoming immediate concerns, and what they received was a clear message that demand substantially remains robust," commented Josh Gilbert, a market analyst at eToro Australia.
Key Points from the Q1 Earnings Report
The company attributed the record sales revenue of $39.1 billion from its core business, data centers, to a 73% year-on-year increase. Although the growth rate slowed compared to the previous quarter's 93%, the result aligned with market expectations. Analysts had anticipated weaker figures due to regulatory challenges.
Nvidia's total revenue for Q1 reached $44.1 billion, marking a growth of 69%, while earnings per share came in at $0.96, both surpassing expectations. Jensen Huang, CEO of the company, emphasized the continued global demand for artificial intelligence (AI) as the primary catalyst for sustained growth, particularly from major cloud service providers. He revealed that Nvidia's most advanced AI chip, Blackwell, is now in full-scale production across system makers and cloud service providers.
"The international demand for Nvidia's AI infrastructure is incredibly strong. AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will intensify. Countries globally recognize AI as essential infrastructure—much like electricity and the internet—and Nvidia finds itself at the epicenter of this transformational era," Huang stated.
The China-Related Restriction Conundrum
Nvidia anticipates revenue of $45 billion (plus or minus 2%) for the current quarter, a figure that reflects a loss of approximately $8 billion in H20 revenue due to the recent export control limitations imposed by the US government.
The US administration requested that Nvidia obtain export licenses for its H20 GPUs intended for sale in China during the first quarter. Although the H20 chips were previously approved, new regulations led to $4.5 billion in write-downs due to excess inventory, a situation that would have resulted in an additional $2.5 billion in sales had it not occurred. As a consequence, Nvidia's gross margin for the first quarter stood at 61%. The margin would have been 71.3% had the charges not taken place.
"The $50 billion Chinese market is, for all intents and purposes, closed off to the US industry," Huang said. "As a result, we are recording a multibillion-dollar write-off on inventory that cannot be sold or repurposed."
Nvidia projects a non-GAAP gross margin of 72.0% (plus or minus 50 basis points) for the current quarter. This margin was 73.5% in the fourth quarter of 2024 and 79% during the same quarter of the previous fiscal year.
In an interview with Bloomberg TV, Huang discussed Nvidia's exploration of alternative options to the H20 chip, subject to approval from the US government.
Expansion Plans Beyond China
Nvidia is participating in President Donald Trump's ambitious AI initiatives in the United States, announced in January. Furthermore, the company revealed a partnership with Saudi Arabia's HUMAIN to construct AI facilities in the kingdom during a recent trip to the region that occurred in conjunction with Trump's visit. These developments were highlighted in the earnings report within the data center section.
"While sales in China are affected by export restrictions, the Middle East appears poised to become the new springboard for Nvidia's next phase of growth," Gilbert concluded.
The Enrichment Data revealed that the US government imposed new export licensing requirements for Nvidia’s H20 AI chips to China, resulting in a $4.5 billion charge for excess inventory in Q1. For Q2, Nvidia expects an $8 billion loss in H20 revenue due to these export controls. Nvidia has continued to generate strong overall revenue, indicating some resilience and ability to offset Chinese market losses through growth in other regions.
Regulatory hurdles, stemming from China controls, notwithstanding, Nvidia posted record revenue and earnings in Q1, fueled by growing demand for AI and data centers. The company is rapidly expanding its global presence and partnerships to mitigate losses from restricted markets and is optimistic about global AI infrastructure investment prospects for the near future.
Nvidia's AI-fueled growth continues, as the tech giant posted impressive Q1 earnings, despite a $8 billion loss due to US chip export restrictions affecting sales to China. The company's share price, however, still jumped by nearly 5% in after-hours trading. Despite the regulatory challenges, the strong demand for AI and data centers globally is driving Nvidia's expansion plans beyond China into new markets like the Middle East, positioning the company for continued growth despite hurdles in specific regions.
