Why Nvidia’s concern over China escalated into full-blown alarm
When the data center boom was full-on booming, it was easier for Nvidia to shrug off curbs on its access to the world’s second-largest economy. As that boom wanes, and restrictions on China get tighter, the loss of this growth opportunity stings more and more.
In May 2023, when Nvidia’s blowout earnings report unofficially kicked the AI boom into high gear and sent shares ripping 24% higher, “China” was barely on anyone’s lips.
The world’s second-largest economy came up just once as a topic of discussion on that earnings call — pertaining to some softness in the chip designer’s automotive business.
Fast-forward to last week, when China was mentioned 27 times during the earnings call, more than the previous four quarters combined.
The Trump administration banned Chinese sales of the H20, a version of Nvidia’s Hopper GPU that had been tailored to comply with restrictions on tech shipments to the world’s second-largest economy, back in April.
Prior to this, over the past year, Nvidia had struck a tone of hopeful optimism regarding China, in large part because of the development of those specialized chips. CEO Jensen Huang rarely spoke on the subject on quarterly earnings calls, with CFO Colette Kress touching on the company’s ability to “continue to comply with export controls while serving our customers” (February 2025) and highlighting the alternatives Nvidia had developed for this market. In August 2023, she even noted that “current regulation is achieving the intended results,” adding that “we do not anticipate that additional export restrictions on our data center GPUs, if adopted, would have an immediate material impact to our financial results.”
However, she included this seemingly prophetic line, whose sentiments have since been echoed by Huang: “Over the long term, restrictions prohibiting the sale of our Data Center GPUs to China, if implemented, will result in a permanent loss of an opportunity for the US industry to compete and lead in one of the world’s largest markets.”
The long term, seemingly, is now, and the tone is one of alarm. Here’s Huang on China from last week’s earnings call:
“On export control, China is one of the world’s largest AI markets and a springboard to global success. With half of the world’s AI researchers based there, the platform that wins China is positioned to lead globally.”
“Today, however, the $50 billion China market is effectively closed to US industry. The H20 export ban ended our Hopper data center business in China.”
“The U.S. has based its policy on the assumption that China cannot make AI chips. That assumption was always questionable, and now it’s clearly wrong.”
What gives? Well, the export controls bite in a much more material and thorough way. After the Biden administration put export controls on chips to China in October 2023, Kress said on the next earnings call that guidance would have been a little higher, but declined to specify exactly how big the hit was.
Last week, Nvidia spelled it out bluntly: a $4.5 billion impairment charge in light of the H20 export ban, $2.5 billion in forgone revenues for Q1, and $8 billion in lost revenues this quarter.
So, for starters, Nvidia is talking about China more because of the scale of the opportunity. The $8 billion in forgone revenues in the current quarter in light of the H20 export ban are more than the total sales of 384 S&P 500 companies — including semi peers AMD and Applied Materials as well as household names like McDonald’s and Mastercard — as of their most recent quarterly report. It’s more than 19 companies in the S&P 500 generated combined in the most recent quarter!
While Nvidia is reportedly preparing a new chip for sale to China, Huang said the limits are “quite stringent at the moment, and we have nothing to announce today” following earnings.
Secondly, Nvidia is perhaps talking about China more because its golden goose — eye-popping data center spending — is looking less shiny. While still growing and still massive, the three-month annualized rate of change for private construction spending on data centers dipped below 10% in April.
And that slowdown in data center spending is coinciding with the continued deceleration in the annual change of Nvidia’s estimated 12-month sales.
So, in short: you can only grow so fast for so long.
When the data center boom was full-on booming, it was easier to shrug off curbs on your access to the world’s second-largest economy. As that boom wanes and restrictions on China get tighter, the loss of the growth opportunity available in this market stings more and more.
