Nvidia outlook beats expectations but China worries linger
By Chavi Mehta, Max A. Cherney and Stephen Nellis
(Reuters) -Chip designer Nvidia (NASDAQ:NVDA) said on Tuesday it expects a steep drop in fourth-quarter sales in China — a key revenue generator — in the wake of new U.S. rules, but forecast overall revenue above Wall Street targets as supply-chain issues ease.
Nvidia, whose graphics processing units (GPUs) dominate the market for AI, is set to take a hit from the vastly expanded U.S. export controls on what the company can sell to China. Sales of the affected chips made up nearly a quarter of Nvidia's datacenter sales in the past few quarters.
«Export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term,» Chief Financial Officer Colette Kress said during a conference call with analysts.
Kress also confirmed reports that the chip giant is developing newly compliant chips for China but those won't materially contribute to fourth- quarter revenue.
Nvidia stock, which has climbed more than 240% this year, slipped 1.5% in volatile after-hours trading.
The company also faces risks in Israel, whose military is embroiled in a conflict in Gaza and where Nvidia's networking business is headquartered. Sales from that unit, whose gear is used in AI supercomputers, rose 155% from a year ago. Kress said the networking business exceeds a $10 billion annualized run rate.
The chipmaker said a significant portion of its employees based in Israel have been called up to active military duty, and if the war continues, their absence could hurt its future operations.
Nvidia forecast adjusted gross margins of 75.5% for the fourth quarter, above analyst estimates of 72.64%, according to LSEG data.
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