Nvidia isn’t getting much credit for a recovery in its China business

Nvidia has talked a ton about the importance of accessing the Chinese AI market — especially after effectively getting locked out after export restrictions were enacted in mid-April.

That talk seemingly paid off: the chip designer has regained the ability to send its H20 chips to the world’s second-largest economy in exchange for sending 15% of revenues generated from those sales to the US government.

Already, those forgone sales have caused full-year revenues to be $10.5 billion lower than they otherwise would have, per Nvidia’s management, but it doesn’t seem like the company is being given much credit for this renewed access.

On the one hand, it appears analysts never fully incorporated a full loss of its H20 business into their forecasts. Or more likely, they did, but thought it would be outweighed by booming demand for AI chips elsewhere. Nvidia’s fiscal year sales estimates never went down by anything close to $10 billion after that export ban was put in place.

But despite delivering a Q1 sales beat and the investing world receiving reassurances from every hyperscaler that the AI boom is still going strong, Nvidia’s fiscal year sales estimates only recently surpassed where they were on April 15, right before export restrictions on the H20 came to light.

So some combination of...

• Concerns over whether that China business will actually come back given that Beijing seemingly wants to wean its tech sector off of Nvidia’s processors,

• Worries that Nvidia’s overall sales might be a bit hamstrung by supply constraints that impede its ability to deliver on solid demand, and/or

• Nvidia has ample scope to surprise to the upside on sales

...are all seemingly at play here.

It’s noteworthy that despite being much, much smaller than the $4 trillion chip designer, AMD’s full-year sales estimates are up by more than Nvidia’s since those export restrictions were initially enacted in mid-April. Of course, that doesn’t just reflect any enthusiasm over AMD’s sales to China, but also optimism over the prospects for AMD’s new AI chip.

AMD, for its part, did not include any revenues from sales to China in its most recent quarterly guidance, but management had a good reason: export licenses for its MI308s hadn’t been granted at the time.

That’s not the case for Jensen Huang and co. as Wednesday’s much anticipated earnings report and conference call await.