Withstanding export restriction pressure! NVIDIA Q2 expected to see H20 revenue decrease by 8 billion, total revenue still meets expectations | Financial Report Insights

In the recently concluded financial quarter, artificial intelligence (AI) chip giant NVIDIA withstood the pressure of export restrictions from the Trump administration, showing overall robust performance.

Affected by the new export restrictions, NVIDIA incurred $4.5 billion in costs related to H20 chip products in the last quarter, but this was lower than the company's previous estimates. Moreover, despite the impact of a larger reduction in H20 revenue, the total revenue guidance for this quarter still roughly aligns with Wall Street expectations. Analysts believe that the guidance indicates strong demand for NVIDIA's most advanced and highest-priced Blackwell chips.

NVIDIA expects that the cutting-edge Blackwell chip, Blackwell Ultra, will begin shipping in this quarter, the second fiscal quarter. As a follow-up product to Blackwell Ultra, the GB300 will go into production this quarter. Analysts believe that the shipment of Blackwell Ultra may help enhance revenue guidance and gross margins in the coming months.

After the earnings report was released, NVIDIA's stock price, which had fallen about 0.5% on Wednesday, surged in after-hours trading, initially rising over 3%, then narrowing to within 3% before expanding again, reaching an increase of over 5%.

On May 28, Eastern Time, NVIDIA announced its financial data for the first fiscal quarter of 2026 (referred to as Q1) ending April 27, 2025, as well as performance guidance for the second fiscal quarter of 2026 (referred to as Q2).

1) Key Financial Data:

Revenue: Q1 operating revenue was $44.1 billion, a year-on-year increase of 69%, while analysts expected $43.29 billion, and NVIDIA's own guidance was $42.14 billion to $43.86 billion, with the previous quarter showing a year-on-year increase of 78%.

EPS: The adjusted earnings per share (EPS) under non-GAAP for Q1 was $0.81, a year-on-year increase of 33%. Excluding H20-related costs and tariff impacts, the EPS was $0.96, with analysts expecting $0.93, and the previous quarter showing a year-on-year increase of 71%.

Gross Margin: The adjusted gross margin for Q1 was 61%, a year-on-year decrease of 17.9 percentage points. Excluding the impact of H20, the gross margin was 71.3%, with analysts expecting 71%. NVIDIA's guidance was 70.5% to 71.5%, while the previous quarter was 73.5%, a year-on-year decrease of 3.2 percentage points.

Operating Expenses: The adjusted operating expenses for Q1 were $3.58 billion, a year-on-year increase of 43%, while analysts expected $3.63 billion, with the previous quarter showing a 53% increase.

2) Segment Business Data:

Data Center: Q1 data center revenue was $39.1 billion, a year-on-year increase of 73%, while analysts expected $39.22 billion, with the previous quarter showing a year-on-year increase of 93%.

Gaming and AI PC: Q1 revenue from gaming and AI PC business was $3.8 billion, a year-on-year increase of 42%, while analysts expected $2.85 billion, with the previous quarter showing a year-on-year decrease of 11% Professional Visualization: In the first quarter, professional visualization revenue was $509 million, a year-on-year increase of 19%, with analysts expecting $505 million, and a year-on-year growth of 10% in the previous quarter.

Automotive and Robotics: In the first quarter, automotive and robotics business revenue was $567 million, a year-on-year increase of 72%, with analysts expecting $579.4 million, and a year-on-year growth of 27% in the previous quarter.

3) Performance Guidance:

Revenue: Second quarter revenue is expected to be $45 billion, with a fluctuation of 2%, i.e., $44.1 billion to $45.9 billion, with analysts' median expectation at $45.5 billion.

Gross Margin: The adjusted non-GAAP gross margin for the second quarter is expected to be 72.0%, with a fluctuation of 50 basis points, i.e., 71.5% to 72.5%, with analysts expecting 71.7%.

Operating Expenses: Adjusted operating expenses for the second quarter are approximately $4 billion, with an expected growth of about 35% for the full fiscal year, and analysts expecting $3.86 billion.

Q1 Revenue Growth Rate Lowest in Two Years Still Exceeds Expectations H20 Related Expenses $4.5 Billion Lower Than Previous Estimates

The financial report shows that NVIDIA's revenue growth in the first quarter further slowed, with a year-on-year growth rate dropping from 78% in the previous quarter to 69%, the lowest quarterly growth rate in two years, but still stronger than analysts' expected growth rate of 66%.

In terms of profit, the export restrictions on H20 chips had a significant impact on NVIDIA. The adjusted EPS grew by 33% year-on-year, less than half of the previous quarter's 71% growth, with an EPS of $0.81 nearly 13% lower than analysts' expectations. However, excluding the impact of H20 expenses, the EPS would rebound to $0.96, which is over 3% higher than analysts' expected $0.93.

The change in gross margin is similar. The adjusted gross margin in the first quarter fell sharply by nearly 18 percentage points year-on-year to 61%, far below analysts' expected 71%. However, excluding the impact of H20 expenses and tariffs, the gross margin would rebound to 71.3%, roughly in line with analysts' expectations and NVIDIA's own guidance.

In the financial report released by NVIDIA this Wednesday, it disclosed that on April 9, it received a notification from the U.S. government that H20 product exports require a license. Due to these new requirements, H20 demand decreased, and NVIDIA incurred expenses of $4.5 billion in the first quarter due to excess inventory and procurement obligations related to H20. This amount is lower than NVIDIA's initial estimate of $5.5 billion when it first disclosed the export restrictions.

According to the Securities Times, NVIDIA disclosed in April that it received a notification from the U.S. government that exporting H20 chips and chips meeting H20 memory bandwidth, interconnect bandwidth, etc., to countries and regions such as China requires a license, with expected expenses related to H20 products in the first quarter reaching as high as $5.5 billion NVIDIA stated on Wednesday that sales of its H20 products in the first quarter amounted to $4.6 billion before the new export licensing requirements were introduced. Additionally, H20 products generating $2.5 billion in revenue failed to be delivered in the first quarter.

Comments suggest that excluding the impact of demand from the Chinese market, NVIDIA's gross margin of 71.3% in the first quarter is a surprising development, highlighting NVIDIA's dominant position in the AI revolution.

Previous earnings reports from Silicon Valley giants like Microsoft indicated that although the changing tariff policies in the U.S. bring uncertainty, the outlook for these companies remains largely unaffected, and they are still prepared to continue investing heavily in AI infrastructure. Microsoft and Alphabet have committed to increasing spending next year, while Meta has raised its capital expenditure expectations for this year, which is undoubtedly positive for computing hardware manufacturers like NVIDIA.

Data Center Revenue Growth Slows More Than Expected, Gaming Business Revenue Hits Record, Up Over 40%

By segment, NVIDIA's core data center revenue growth in the first quarter slowed to 73% from 93% in the previous quarter, slightly exceeding Wall Street's expectations for the slowdown.

NVIDIA highlighted some of the announced achievements in its data center business for the first quarter, including a partnership with Saudi AI company Humain to build an AI factory in Saudi Arabia; and the creation of the global version of the Stargate, "Stargate UAE," in Abu Dhabi's AI infrastructure cluster in collaboration with strategic partners G42, OpenAI, Oracle, SoftBank, and Cisco.

A recent report from Wedbush analysts believes that the growth in demand from the Middle East will offset the impact of NVIDIA's restricted sales in China, and it is expected that spending in AI by Saudi Arabia and the UAE "may help fill the gap in NVIDIA's future business caused by recent uncertainties in the Chinese market," potentially bringing $1 trillion in growth to the global AI market in the coming years.

In other segments, NVIDIA's gaming and AI PC business revenue reached a record $3.8 billion in the first quarter, far exceeding analyst expectations, with a year-on-year growth rate of over 40%, reversing the 11% decline from the previous quarter. The growth rate for automotive and robotics business exceeded 70%, significantly accelerating from 27% in the previous quarter, but still below analyst expectations.

Q2 Revenue Guidance Considers $8 Billion Impact from H20 Revenue Decline, Gross Margin Rebounds to 72%

In terms of guidance, NVIDIA's expected revenue midpoint for the second quarter is $45 billion, representing a year-on-year growth of 50%, slightly below the analyst consensus expectation of $45.5 billion. However, NVIDIA pointed out that the guidance for the second quarter takes into account the impact of H20 export restrictions, with expected revenue from H20 for the quarter to decline by approximately $8 billion.

NVIDIA's gross margin midpoint for the second quarter is 72.0%, rebounding significantly from 61% in the first quarter affected by H20, returning to a recent normal level above 70%, in line with analyst expectations. NVIDIA stated that the company will continue to strive to increase the gross margin to around 70% in the second half of this year.

Some comments noted that while the consensus expectation is $45.5 billion, it is important to recognize that some analysts have already accounted for the potential revenue loss from H20 in their forecasts, while others have not. Therefore, this consensus figure should be viewed flexibly There are also comments stating that the guidance for the second quarter shows that NVIDIA is increasing the production of Blackwell architecture chips.

Jensen Huang: Blackwell NVL72 AI supercomputer has been fully put into production, China is one of the largest AI markets

NVIDIA CEO Jensen Huang announced in the earnings report that the Blackwell NVL72 AI supercomputer has been fully put into production. He said:

"Our groundbreaking Blackwell NVL72 AI supercomputer—a 'thinking machine' designed specifically for inference—has now been fully put into production among system manufacturers and cloud service providers.

The global demand for NVIDIA's AI infrastructure is exceptionally strong. The production of AI inference tokens has surged ninefold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate. Countries around the world have recognized AI as an infrastructure as important as electricity and the internet, and NVIDIA is at the center of this profound transformation."

During the earnings call, Huang stated that China is one of the largest AI markets in the world and a springboard for global success. Winning in China will help the company replicate such performance globally. Regardless of whether there are American chips, China's AI industry will continue to move forward