Nvidia surpasses expectations in outlook, yet concerns persist over its performance in China

23 Nov, 2023

Nvidia surpasses expectations in outlook, yet concerns persist over its performance in China

Chip designer Nvidia announced a projected decline in fourth-quarter sales in China due to expanded U.S. export controls, impacting nearly a quarter of the company's data center sales. While challenges persist, Nvidia forecasts overall revenue surpassing Wall Street targets as supply-chain issues improve.

Nvidia's CFO, Colette Kress, acknowledged the negative impact of export controls on their China business during a conference call. Although the company is developing compliant chips for China, these are not expected to significantly contribute to fourth-quarter revenue. The stock, which has seen significant growth this year, experienced a 1.5% dip in after-hours trading.

In addition to China, Nvidia faces risks in Israel, where its networking business is headquartered, amid the conflict in Gaza. The networking business saw a 155% rise in sales from a year ago. However, a significant number of employees in Israel have been called up for active military duty, potentially affecting future operations if the conflict continues.

Nvidia remains optimistic about its AI chip supply, expecting improvement as it pre-pays to secure factory priority. Despite concerns about China impacting profit margins, the company forecasts adjusted gross margins of 75.5% for the fourth quarter, exceeding analyst estimates.

While Nvidia has developed new products for the Chinese market in response to U.S. export rules, challenges remain, and the company's focus on China-specific chips may consume crucial research resources. The evolving export restrictions pose ongoing uncertainties for Nvidia's operations in China.

The company reported a robust third-quarter performance, with adjusted revenue tripling to $18.12 billion, beating estimates. Nvidia anticipates a current-quarter revenue of $20 billion, demonstrating confidence in its overall business outlook despite geopolitical challenges and evolving market dynamics.