A China Chip Denial Lands Before Nvidia’s (NVDA) Big Week

Nvidia’s denial of a report about planned small-batch shipments to China has added another layer of complexity to its upcoming earnings announcement, due next week. The tech giant’s ability to maintain its growth trajectory while navigating the choppy waters of US-China relations will be put to the test.

One often-overlooked aspect of Nvidia’s story is its remarkable resilience in the face of shifting regulatory landscapes and economic headwinds. Despite these challenges, Nvidia has consistently beaten its own revenue guidance over the past few quarters, with adjusted earnings exceeding Wall Street estimates every time. This is a testament to the enduring strength of demand for the company’s AI chips, which are used by top-tier customers like SpaceX.

SpaceX represents an interesting case study in Nvidia’s partnership. The private space company has been investing heavily in AI infrastructure, and its relationship with Nvidia is a key component of this effort. According to reports, SpaceX plans to spend between $150 billion and $250 billion on chips over the next few years, one of the largest investments in AI hardware in history. This deal alone should give investors confidence in Nvidia’s ability to drive growth, even if China-specific revenue remains elusive.

However, the elephant in the room remains Nvidia’s relationships with Chinese customers. The latest spat between Nvidia and Huawei over LPU chips is a reminder that US-China tensions are far from resolved. While Nvidia has largely conceded the Chinese AI chip market to Huawei, the uncertainty surrounding this relationship will likely continue to weigh on investor sentiment.

Nvidia’s revenue guidance for the upcoming quarter sits at $91 billion, plus or minus 2%, with a zero assumption for data center compute revenue from China. This conservative estimate underscores the risks associated with relying too heavily on Chinese customers. If licensed sales materialize, they would represent pure upside – but this is far from guaranteed.

A closer examination of Nvidia’s guidance reveals a company navigating the complexities of growth and profit margins. The midpoint implies roughly $9 billion of new sequential revenue, down from about $13.5 billion added in the previous quarter. This slowdown may signal that Nvidia’s growth momentum is beginning to wane – or it could be a deliberate strategy to manage expectations.

Nvidia’s stake in SpaceX carries its own set of risks and opportunities. The company’s staggered unlock schedule, which allows for more permissive trading, could put pressure on shares as more stock becomes tradable. However, the scale of investment in AI infrastructure by customers like SpaceX should provide a tailwind for Nvidia’s growth.

As investors prepare to digest Nvidia’s earnings announcement next week, one thing is clear: the company’s China story remains unresolved. The denial of the report about planned small-batch shipments has added complexity to the narrative, but it also serves as a reminder that Nvidia’s ability to maintain its growth trajectory will depend on its relationships with Chinese customers – and its willingness to adapt to shifting regulatory landscapes.

The stakes are high, but one thing is certain: Nvidia’s earnings announcement next week will be closely watched by investors, analysts, and regulators alike. Will the company continue to defy expectations, or will the China quagmire prove too much to navigate?