Quote from Alex bobby on May 29, 2025, 4:18 AM

Nvidia Shares Surge as AI Demand Drives Strong Earnings Despite China Headwinds

Nvidia’s shares surged nearly 5% during extended trading after the company reported quarterly earnings that surpassed analysts’ expectations, demonstrating its continued dominance in the AI chip market. Despite losing an estimated $8 billion (€7.1 billion) in potential revenue due to U.S. export restrictions on sales to China, Nvidia remains bullish on growth prospects for the current quarter, thanks to strong global demand for artificial intelligence (AI) infrastructure.

First-Quarter Earnings Beat Expectations

For the first quarter of its fiscal year 2026, Nvidia reported total revenue of $44.1 billion (€39.2 billion), marking a 69% year-on-year increase and exceeding Wall Street estimates. Earnings per share stood at $0.96 (€0.85), further beating market expectations. A major contributor to this performance was Nvidia’s data centre segment, which saw revenue rise by 73% year-on-year to $39.1 billion (€34.7 billion), setting a new record.

While this growth reflects a slight slowdown from the 93% increase in the previous quarter, it is nonetheless seen as a strong result given the regulatory environment. Analysts had expected a more pronounced decline due to the U.S. government’s new restrictions on AI chip exports to China.

CEO Jensen Huang credited the strong performance to surging demand for AI computing from major cloud providers and governments around the world. “Global demand for Nvidia’s AI infrastructure is incredibly strong,” he said. “AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate.”

Nvidia’s most advanced AI chip, Blackwell, has now entered full-scale production and is being integrated into systems by global cloud service providers.

China Export Restrictions Weigh on Results

Despite the upbeat earnings, Nvidia’s results were weighed down by regulatory challenges in China. Due to tightened U.S. export controls, the company was unable to ship its high-performance H20 GPUs to Chinese customers without obtaining licenses.

As a result, Nvidia faced a $4.5 billion (€4 billion) inventory write-down and missed out on an additional $2.5 billion (€2.2 billion) in potential sales. Overall, the company estimates a loss of $8 billion in revenue due to these export restrictions.

The impact was also visible in Nvidia’s gross margin, which came in at 61% for the quarter. Excluding the China-related charges, margins would have stood at a healthier 71.3%. “The $50 billion China market is effectively closed to the U.S. industry,” Huang said. “We are taking a multibillion-dollar write-off on inventory that cannot be sold or repurposed.”

Looking ahead, Nvidia expects revenue of $45 billion (€40 billion) for the current quarter, plus or minus 2%, and a non-GAAP gross margin of 72.0%. While slightly lower than previous levels, the forecast suggests the company is successfully mitigating the impact of lost China revenue by expanding in other markets.

Middle East and U.S. Expansion Provide Growth Offsets

To counterbalance the downturn in China, Nvidia is aggressively expanding in the United States and the Middle East. The company is backing AI-related initiatives under former President Donald Trump’s administration and has joined forces with Saudi Arabian firm HUMAIN to build AI data factories in the Gulf kingdom.

This new partnership highlights the strategic shift in Nvidia’s growth focus. With China becoming increasingly inaccessible, regions like the Middle East are emerging as key areas for future expansion.

“The Middle East looks set to become the new launchpad for Nvidia’s next phase of growth,” said Josh Gilbert, a market analyst at eToro Australia.

Nvidia is also reportedly exploring alternative versions of its H20 chip that may comply with U.S. export rules. However, any new chip designs would still require government approval, leaving some uncertainty around the timing and viability of this workaround.

Market Outlook and Investor Confidence

Following the earnings release, Nvidia’s share price jumped nearly 5% in after-hours trading, bringing it within 8% of its all-time high recorded in January. The rally positions Nvidia’s stock back into positive territory for the year and solidifies its standing as the world’s most valuable company by market capitalisation—surpassing tech giants Microsoft and Apple.

Market watchers believe Nvidia’s strong results send a reassuring message to investors. “Investors entered this quarter looking for signs that Nvidia could alleviate short-term concerns,” Gilbert said. “What they received was a clear message that demand remains robust.”

Conclusion

Nvidia’s latest earnings report proves that the company remains the global leader in AI technology, even amid geopolitical and regulatory turbulence. While U.S.-China trade tensions have temporarily dimmed sales prospects in one of its biggest markets, Nvidia's aggressive push into new regions like the Middle East, coupled with its unmatched dominance in AI chip manufacturing, ensures its growth trajectory remains firmly upward.

With AI becoming the foundation of next-generation infrastructure, Nvidia is not just riding a tech trend—it’s building the backbone of a global transformation.