China Sales Restrictions Are Holding Back Nvidia's Potential

If you follow the world of technology and artificial intelligence, you know that Nvidia is currently at the top. The U.S. chipmaker has just released its financial results for the quarter ending in July 2025, and I must say they look very promising. Despite facing restrictions on sales to China, the company is reporting massive growth.

Strong Revenue Growth Driven by AI Chips and Networking Equipment

Nvidia generated revenue of $46.74 billion (approximately CZK 1.052 trillion) this quarter, representing a 56% increase compared with the same period last year. That is 6 percentage points better than the company's own forecast. The main drivers were sales of artificial intelligence (AI) chips and networking equipment, including its flagship Blackwell chips. Despite recent restrictions on chip sales to China, the company performed well, primarily thanks to major customers.

Approximately half of Nvidia's sales come from major cloud service providers such as Google, Microsoft, Amazon, and Oracle. The company's chief financial officer, Colette Kress, said that these companies will collectively spend $600 billion (approximately CZK 13.5 trillion) on data centers and chips this year alone. CEO Jensen Huang called that a "quite reasonable" estimate when discussing global spending on AI infrastructure—expected to reach $3 trillion to $4 trillion (approximately CZK 67.5 trillion to CZK 90 trillion) by the end of the decade.

It is also notable that Nvidia recorded a significant jump in sales of networking equipment that connects servers powered by its chips. Unlike in previous quarters, the CFO's commentary did not mention DGX Cloud, a service through which the company rents its chips to businesses. This suggests that the cloud business is not currently a major focus for Nvidia. The company generated $13.5 billion (approximately CZK 303.75 billion) in cash, roughly the same as its free cash flow during the same period last year.

Growth Could Accelerate Further

For the quarter ending in October 2025, Nvidia forecasts revenue growth of 53.8%, with expected revenue of around $54 billion (approximately CZK 1.215 trillion). Given the company's history of frequently exceeding its own estimates, this suggests that growth could be even faster than in July. This optimism stems from growing demand for AI technologies around the world.

The information indicates that Nvidia did not include any sales to China in its projections for this quarter, but if it receives the green light from U.S. authorities, it could add another $2 billion to $5 billion (approximately CZK 45 billion to CZK 112.5 billion). The company is even stockpiling around 700,000 H20 chips (specially designed for the Chinese market) while awaiting regulatory approval, and has temporarily halted their production at supplier TSMC due to the uncertainty.

China Sales Restrictions: A Major Lost Opportunity

One of Nvidia's biggest pain points is U.S. restrictions on chip exports to China, which the United States considers a geopolitical rival. In the July quarter, the company sold no AI chips to China and did not include such sales in its projections for October either. According to Colette Kress, China could bring in an additional $2 billion to $5 billion (approximately CZK 45 billion to CZK 112.5 billion) this quarter if the restrictions were eased.

Jensen Huang said that without these restrictions, China would represent a $50 billion (approximately CZK 1.125 trillion) opportunity for Nvidia this year. In addition, Kress mentioned that the Donald Trump administration had indicated an interest in taking a 15% share of chip sales to China. Other sources indicate that Chinese companies have strong demand for H20 chips for AI inference tasks (data processing), but face pressure from their government to choose domestic alternatives, such as those from Huawei. China is the world's second-largest computing market, and Nvidia is lobbying for policy changes while emphasizing the country's importance to global AI research.

Market Reaction and Share Value

Nvidia shares fell 3% in after-hours trading following the release of the results, despite having risen by more than 30% this year, in line with competitors such as Broadcom and AMD. Nvidia is now the world's most valuable company, with a market capitalization of nearly $4.5 trillion (approximately CZK 101.25 trillion). Its shares trade at approximately 36 times expected future earnings, significantly less than a few years ago—in other words, the shares are now cheaper.

The data shows that although data center revenue rose 17% compared with the previous quarter, it fell short of overall expectations, contributing to investor caution. Nevertheless, the Blackwell platform is seeing enormous demand and helping to offset short-term problems related to China. Gross margin was 72.4% under GAAP (generally accepted accounting principles) and 72.7% on a non-GAAP basis, with a minor adjustment related to H20 inventory sold outside China.

In conclusion, Nvidia shows that the AI boom is far from over, but geopolitics could significantly reshape the landscape. If the restrictions are eased, the company could see even greater growth.

Source: www.theinformation.com