Nvidia shares fall as chipmaker's China business remains uncertain

STORY: Shares in chipmaking giant Nvidia tumbled on Wednesday with the company's business in China still in limbo.

The company posted a lukewarm outlook because it doesn't include any potential sales in China in the third quarter.

It was still a huge number at a forecast of $54 billion, above analyst expectations of $53 billion.

However, that disappointed some investors used to blowout results from one of the top performers on the market.

Shares were down as low as 3.2% in after-hours trade.

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That clipped about $110 billion from its market cap, an amount greater than the entire value of its rival Intel.

CEO Jensen Huang said he expects to restart selling to China after striking a deal with U.S. President Donald Trump.

The U.S. government is set to take a slice of Nvidia's chip sales to China.

However, formal rules are not yet in place, and it's unclear whether Chinese regulators will discourage purchases of Nvidia chips.

In May, Nvidia expected trade-war curbs to shave $8 billion in sales from its second quarter. Related Videos

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If geopolitical issues subside and it gets more orders, Nvidia said it could add $2 billion to $5 billion in H20 revenue in Q3.

Brian Colello, equity strategist for Morningstar, says there's more to consider for Nvidia's long-term outlook:

"We were impressed with some of the discussion about what they're seeing over the next few years. They're calling for 3 to $4 trillion of data center infrastructure spend over the next five years - Nvidia's been capturing about a third of that."

"This year, they're at a $10 billion run rate on their networking, which is a cherry on top of everything they're doing in GPUs. That layer and that ability of Nvidia to expand into networking in addition to its GPU dominance has been really impressive in our eyes. So there's a lot still to like with Nvidia, even if there's some turmoil with China."

Big tech names Meta and Microsoft have been spending liberally to support their AI ambitions.

Nvidia is the biggest beneficiary, with a significant chunk of this spending funneled toward its chips.

Governments as well, have been key customers. Nvidia says "sovereign AI" efforts - a push to sell AI chips and software to governments around the world - are on track to generate $20 billion in revenue this year.

China though, is rushing work to reduce its dependency on Nvidia - having in the past made clear its security concerns about Nvidia's China-special H20 chips.

According to the Financial Times Wednesday, Beijing aims to triple AI chip output in 2026, with Huawei aiming to start production by the end of this year at a plant dedicated to making AI chips, and two more such facilities set to launch next year.

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