Nvidia Faces Challenges as Stock Declines Due to China Export Restrictions

Shares of Nvidia (NASDAQ: NVDA) dropped last week after the company announced it would incur a charge of up to $5.5 billion linked to new export restrictions imposed on China. The company stated it can no longer export its H20 chip, which is a less powerful counterpart to its H100 GPU but was built to comply with earlier regulations, without a license. Nvidia’s filing suggested that obtaining this license is unlikely.

Impact on Revenue Projections

Wall Street analysts provided varying assessments of how these restrictions might affect Nvidia’s financial performance. Wedbush estimated a potential revenue decline of 10%, while Bank of America indicated that a “dire” tariffs scenario could lead to a revenue drop between 9% and 13% in 2025 and 2026. This estimated reduction in revenue will exceed the $5.5 billion charge, which reflects the cost of the chips rather than their retail price.

Looking at Nvidia’s recent financials, the revenue loss from China could align with these projections. In fiscal 2025, which concluded in January 2025, the company reported $17.1 billion in revenue, indicating that approximately 13% of its total revenue came from China. Interestingly, the contribution of Chinese revenue has decreased over the last two years, suggesting a decline for this fiscal year as well. It remains uncertain if Nvidia intends to introduce another less powerful chip to replace the H20, or if it may decide to abandon the Chinese market altogether amidst escalating political challenges.

Image search: Getty Images.

Nvidia’s Ongoing Challenges with China

Moreover, Nvidia’s complications with China are not limited to export restrictions. On Wednesday, the House Select Committee investigating the Chinese Communist Party (CCP) began scrutinizing Nvidia’s ties with DeepSeek, a Chinese AI start-up. The committee’s report identified DeepSeek as a “serious national security threat,” noting that it operates using “tens of thousands of Nvidia chips.”

Committee Chairman John Moolenaar accused DeepSeek of being designed to “spy on Americans” and “steal our technology,” alleging it leveraged “advanced Nvidia chips that should never have ended up in CCP hands.” The report further claimed Nvidia CEO Jensen Huang directed the company to create modified chips to exploit regulatory loopholes in response to previous restrictions.

The committee also contacted Nvidia, expressing concerns that unsanctioned parties were funneling its chips to China in violation of U.S. export rules, and requested comprehensive documentation on Nvidia’s customer engagements in China and Southeast Asia.

In response, Nvidia stated, “We follow the government’s directions to the letter.”

Investor Implications

It remains uncertain what repercussions, if any, the investigation may have on Nvidia’s operations. Historically, the company has not faced significant penalties over its business practices, having been merely fined $5.5 million by the SEC in 2022 concerning disclosures about crypto mining and its graphics processing units (GPUs). Currently, Nvidia also finds itself under investigation for antitrust matters in both France and China.

While this Congressional investigation could temporarily tarnish Nvidia’s image, it could also be interpreted positively. By targeting Nvidia, the committee underscores the strength of its technology, suggesting it is so valuable that it warrants intense scrutiny to ensure that the U.S. does not fall behind its global competitors. Rep. Moolenaar emphasized this sentiment, stating, “American innovation should never be the engine of our adversaries’ ambitions,” although the innovation attributed to Nvidia belongs directly to the company.

Positioning Nvidia’s chips as akin to national secrets may grant the company a unique status. If the investigation determines that Nvidia has acted within the law regarding its transactions in China, this scrutiny could enhance Nvidia’s credibility rather than diminish it.

Although the $5.5 billion charge and the projected loss of business from China are concerning, Nvidia has resilience and could rebound from these challenges. Government sanctions would pose a far greater threat to its operations. Should the investigation absolve Nvidia, the stock could present a strong buying opportunity, as federal restrictions currently represent a more significant risk than other factors affecting the company.

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Jeremy Bowman holds shares in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.