Shares of Nvidia (NASDAQ: NVDA) tumbled last week after the company announced that it would take a charge of up to $5.5 billion related to China export restrictions.
The company said it would no longer be able to export its H20 chip, a less powerful version of its H100 GPU and designed to comply with earlier export rules, without a license. Nvidia's filing implies that getting a license is unlikely.
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Wall Street analysts had varying estimates of the impact to Nvidia's bottom line. Wedbush said that the restriction would lower its revenue by 10%. Bank of America said a "dire" tariffs scenario would reduce revenue by 9% to 13% in 2025 and 2026. The reduction in Nvidia's revenue will be more than the $5.5 billion charge since that reflects the cost of the chips rather than their selling price.
The loss of revenue from China should be limited to roughly the percentage the analysts are estimating above as Nvidia reported $17.1 billion in revenue in fiscal 2025, which ended in January 2025, or 13% of its total revenue. The percentage of Nvidia's revenue coming from China has declined in each of its last two years, so it seems like it would have fallen this year as well. It's unclear if Nvidia plans to replace the H20 with another less powerful chip, though it may give up on China altogether due to the political pressure as the export restrictions aren't Nvidia's only challenge.
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Nvidia's China problems don't end there
On Wednesday, the House Select Committee, focused on the Chinese Communist Party (CCP), opened up an investigation demanding answers from Nvidia over its relationship with DeepSeek, the Chinese AI start-up. The report called DeepSeek a "serious national security threat" and noted that its models run on "tens of thousands of Nvidia chips."
Committee Chairman John Moolenaar said DeepSeek is designed to "spy on Americans" and "steal our technology," and that it used "advanced Nvidia chips that should never have ended up in CCP hands." Additionally, the report alleged that Nvidia CEO Jensen Huang "directed the company to design a modified chip specifically to exploit regulatory loopholes" following earlier restrictions.
The committee also sent a letter to Nvidia expressing concern that bad actors were diverting its chips to China against U.S. export rules, and it requested documents detailing the history of Nvidia's customer transactions in China and Southeast Asia.
In a statement responding to the committee, Nvidia said, "We follow the government's directions to the letter."
What it means for investors
It's unclear what the consequences of the investigation, if any, will be for Nvidia. The company has never faced a significant fine over its business practices before, though it was a much smaller company for most of its history.
It was fined $5.5 million as a result of a Securities and Exchange Commission (SEC) investigation-related disclosure around crypto mining and its gaming graphics processing units (GPUs) in 2022, and is now facing an antitrust investigation in both France and China.
While the Congressional investigation could put a cloud over Nvidia's reputation in the near term, looking at it from another perspective, the investigation is almost a compliment to the company and its technology.
By singling out Nvidia, the committee is essentially saying that its technology is so powerful and sought-after that it must be closely guarded so that the U.S. doesn't fall behind its primary global rival. Rep. Moolenaar concluded his statement by saying, "American innovation should never be the engine of our adversaries' ambitions," though the innovation in question belongs to Nvidia, not the U.S.
By treating Nvidia's chips as if they're nuclear secrets, the government seems to be giving the company special status. If the investigation reveals that Nvidia has complied with the law in its dealings with China and the surrounding region, this episode may only burnish the company's credentials.
While the $5.5 billion charge and the related loss of business in China is disappointing, Nvidia can overcome that. Severe government sanctions would be more devastating.
If the investigation clears Nvidia's name, however, the stock looks like an unquestionable buy as federal restrictions and intervention could be the biggest threat facing the company right now.
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