Nvidia crushed expectations with a bumper quarterly earnings report on Wednesday, reporting a 265% increase in revenue from the same period a year ago, sending shares up over 9% in extended trading. CEO Jensen Huang said Nvidia now has to “allocate [chips] fairly” as customers flock to its processors, key to the AI boom. “Accelerated computing and generative AI have hit the tipping point,” Huang said.
But amid the blowout quarter, Nvidia also acknowledged how tensions between the U.S. and China, particularly over semiconductors, is affecting its business. China now represents a “mid-single-digit percentage” of Nvidia’s data center revenue, chief financial officer Colette Kress said on Wednesday. She suggested that China would make up a similar percentage of revenue for the current quarter as well. (Data center revenue aligns with Nvidia’s AI chip business.)
It’s a significant drop: Nvidia has previously noted that China made up as much as a quarter of the company’s data center revenue.
The U.S. first announced controls on sales of advanced semiconductors to China in October 2022. Companies like Nvidia then developed chips that complied with the restrictions yet still offered the same advanced capabilities. The Biden administration updated its restrictions last October to close that loophole.
On Thursday, Kress admitted that the U.S. government has not granted a license to Nvidia to ship restricted products to China. Nvidia has started shipping alternative products to China that don’t require a license, she continued.
Huang said Nvidia has “immediately paused” and “reset” its product offerings in China, which he blamed for the drop in data center revenue from China. The company would do its best to succeed in the Chinese market “within the specifications of U.S. restrictions,” he said.
Nvidia is again trying to develop chips for the Chinese market that comply with U.S. restrictions, but Chinese customers are reportedly turning to domestic alternatives instead. Chinese tech companies are less interested in buying Nvidia’s downgraded products, which are now closer in performance to cheaper Chinese options, the Wall Street Journal reports. Chinese chipmakers are pitching their own chips as a safer option, given the possibility of new controls from the U.S., Reuters reported in December.
