Nvidia's AI Chip Demand Drives Revenue Forecast, But China Sales Concerns Weigh on Shares

Nvidia announced on Wednesday, August 27th, that it anticipates third-quarter revenue exceeding market expectations. This positive outlook is largely fueled by the strong demand for its artificial intelligence (AI) chips. However, the company's stock experienced a decline, primarily due to uncertainties surrounding sales in China.

The AI chip manufacturer projects revenue to reach US$54 billion, with a margin of plus or minus 2 percent. This forecast surpasses the average Wall Street estimate of US$53.14 billion, according to LSEG data. The company's guidance does not include any sales of its H20 chips to China. This decision follows the announcement by Washington of a 15 percent commission on shipments, although the specific rule formalizing the fee has not yet been published.

Despite the positive revenue forecast, Nvidia's shares saw a dip of 2.6 percent in after-hours trading. This decrease resulted in a loss of approximately US$110 billion from its US$4.4 trillion market value. The stock decline occurred even though the company reported second-quarter revenue of US$46.74 billion, which exceeded the anticipated US$46.06 billion.

Nvidia's data center business generated US$41 billion in revenue, with about half of that coming from large cloud providers. Analysts noted that this figure was slightly below expectations, potentially indicating a cautious approach to near-term AI spending by hyperscalers.

According to Jacob Bourne, an analyst at eMarketer, the data center results, while substantial, suggested that spending might be curbed if the short-term returns on investment remain challenging to quantify.

Nvidia has significantly benefited from the competitive landscape among major technology companies, including Microsoft and Meta, as they strive to develop AI systems. The company's advanced chips are crucial for handling the extensive data required to power generative AI applications.