Nvidia Stock Soars Despite Chinese AI Market Cutoff

Nvidia’s stock is up, its earnings are soaring, and the AI boom is still running hot—except, of course, in China. On May 28, 2025, Nvidia announced first-quarter results for fiscal year 2026 that blew past Wall Street’s expectations, despite a head-spinning $4.5 billion charge tied to excess inventory and purchase obligations for its H20 chips. That’s the less-powerful processor Nvidia created specifically for the Chinese market, now sitting in warehouses because of new US export restrictions. The numbers are staggering: $44.06 billion in revenue, up 69% year-over-year, with adjusted earnings per share of 81 cents, handily beating analysts’ consensus[2][3][4]. But what’s really behind this story? How is Nvidia navigating a world where its most lucrative market is suddenly off-limits—and what does this mean for the future of AI hardware?

Let’s face it, Nvidia is the undisputed heavyweight champion of AI chips right now. Its GPUs are the engine behind everything from OpenAI’s GPT-4o to Google’s Gemini, not to mention countless enterprise AI deployments. But geopolitics, as always, has a way of throwing a wrench into even the best-laid plans. The US government’s tightening of export controls on advanced AI chips to China—aimed at curbing Beijing’s access to cutting-edge technology—has forced Nvidia to scramble. The result? A $4.5 billion hit in Q1, and warnings of an $8 billion to $10.5 billion loss in H20 revenue for the year[1][3]. That’s real money, even for a company as dominant as Nvidia.

The Earnings Breakdown: Numbers That Tell a Story

Here’s a quick snapshot of Nvidia’s Q1 FY2026 results:

• Revenue: $44.06 billion (up 69% year-over-year)
• Adjusted EPS: 81 cents (vs. analyst estimates of 75 cents)
• Data Center Revenue: $39.1 billion (up 73% year-over-year, but slightly below analyst expectations)
• Stock Movement: Up 2% post-announcement, with after-hours trading pushing gains to 3% and shares closing at $134.68, up 0.4% year-to-date[2][3][4]

Despite the China setback, Nvidia’s global data center business is still on fire. The company’s chips are powering AI training and inference at hyperscale cloud providers, startups, and large enterprises worldwide. In fact, the data center segment accounts for nearly 89% of total revenue—a remarkable concentration of growth in just one area.

The China Conundrum: Why the H20 Chip Became a Liability

Nvidia’s H20 chip was designed as a workaround for US export controls, offering Chinese customers a less powerful alternative to its flagship AI GPUs. But the latest round of restrictions, rolled out in late 2024 and early 2025, have made even these chips a tough sell. Demand plummeted, and Nvidia was left holding the bag—literally—with excess inventory and purchase obligations it couldn’t fulfill. The company’s earnings release didn’t mince words: “As a result of these new requirements, NVIDIA incurred a $4.5 billion charge in the first quarter of fiscal 2026 associated with H20 excess inventory and purchase obligations as the demand for H20 diminished.”[3]

By the way, this isn’t just a hit to the balance sheet. It’s a strategic headache. China has been a critical market for Nvidia, accounting for a significant share of its data center revenue. With the door closing on advanced AI chip sales, Nvidia is scrambling to find new growth avenues.

The AI Chip Arms Race: Nvidia’s Global Competitors and Alternatives

While Nvidia is still king of the hill, rivals are circling. Companies like AMD, Intel, and a host of Chinese startups are racing to fill the gap. In China, domestic players like Huawei and Biren are pushing their own AI chips, hoping to capitalize on the vacuum created by US restrictions. But let’s be real: none of these challengers have the scale, software ecosystem, or track record of Nvidia—at least not yet.

Here’s a quick comparison:

*H20 is now largely unsellable in China due to export controls.

Real-World Impact: What Does This Mean for AI Development?

The ripple effects of Nvidia’s China woes are being felt across the tech world. Cloud providers like Alibaba, Tencent, and Baidu—who have relied on Nvidia for their AI infrastructure—are now forced to pivot. Some are turning to domestic alternatives, while others are exploring workarounds like sourcing chips through third-party channels. This isn’t just a supply chain issue; it’s a fundamental shift in how AI compute is distributed globally.

Interestingly enough, the restrictions have also sparked innovation. Chinese firms are investing heavily in homegrown AI chips, and some are even developing their own software stacks to reduce reliance on Nvidia’s CUDA ecosystem. But as someone who’s followed AI for years, I can tell you: building a viable alternative to Nvidia’s end-to-end solution is no small feat.

Historical Context: How We Got Here

The current standoff is the latest chapter in a decade-long saga of US-China tech rivalry. From the Huawei ban to TikTok’s near-sale, the two superpowers have been locked in a battle for technological supremacy. AI, with its dual-use potential (think military and civilian applications), is at the heart of this struggle. The US government’s goal is clear: slow China’s AI progress by limiting access to the best hardware.

Nvidia, caught in the middle, has tried to thread the needle—developing less powerful chips for the Chinese market, only to see those, too, get caught in the crossfire. The result is a high-stakes game of cat and mouse, with billions of dollars and the future of AI innovation on the line.

Future Implications: Where Do We Go From Here?

Looking ahead, Nvidia’s leadership is cautiously optimistic. The global AI boom shows no signs of slowing, and demand for its chips outside China remains robust. But the company is also realistic about the challenges. “We expect an $8 billion loss in H20 revenue due to US export restrictions on China chip sales,” Nvidia warned in its earnings call[3]. That’s a big chunk of change, but it’s a price Nvidia seems willing to pay to stay on the right side of US regulators.

The bigger question is: what happens to AI development in China? With access to the world’s best chips cut off, Chinese firms will either have to make do with less powerful hardware or pour resources into building their own. Neither path is easy, and both could slow the pace of innovation—at least in the short term.

Different Perspectives: Bullish on Nvidia, Bearish on China

Wall Street’s reaction to Nvidia’s earnings was telling. Analysts were generally upbeat, praising the company’s ability to beat expectations despite the China headwinds. “Nvidia’s first-quarter earnings beat Wall Street’s revenue expectations,” noted Business Insider, “but uncertainty looms in the second half of 2025.”[3] The stock’s bounce—up 2% after the announcement, and over 4% by the end of the analyst call—reflects confidence in Nvidia’s global growth story.

But not everyone is so sanguine. Some industry watchers worry that the loss of the Chinese market could eventually catch up with Nvidia, especially if domestic competitors start to close the gap. Others see this as a wake-up call for the entire AI industry, highlighting the risks of over-reliance on a single supplier—even one as dominant as Nvidia.

Real-World Applications and Impacts

The fallout from Nvidia’s China predicament is already being felt in practical terms. Startups and enterprises building AI applications are having to rethink their hardware strategies. In China, companies are experimenting with hybrid solutions—mixing domestic chips with whatever Nvidia hardware they can still access. Outside China, the scramble for Nvidia’s H100 and H200 GPUs is intensifying, driving up prices and creating bottlenecks.

As someone who’s talked to AI engineers on both sides of the Pacific, I can tell you: the mood is a mix of frustration and determination. Engineers in China are working overtime to optimize their models for less powerful hardware, while their counterparts in the US and Europe are racing to secure enough GPUs to keep their AI projects on track.

Key Takeaways and Forward-Looking Insights

Nvidia’s latest earnings report is a microcosm of the broader AI industry: explosive growth, geopolitical tensions, and relentless innovation. The company’s ability to thrive despite the loss of a major market is a testament to its dominance—and to the insatiable global appetite for AI compute.

But the story isn’t over. The US-China tech rivalry is only heating up, and Nvidia is just one player in a much larger drama. As AI becomes increasingly central to economic and military power, the stakes will only get higher. For now, Nvidia is riding the wave—but the next big test could be just around the corner.

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