Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Nvidia NVDA expects $5.5 billion amortization related to the H20 artificial intelligence GPU will occur as the US restricts exports to China. The H20 was created specifically for the Chinese market to allow NVIDIA to bypass previous US restrictions. Stocks fell approximately 6% after opening hours.
Why it matters: The US government has another round on Nvidia as the country strives to lead the AI race. China has shrunk from 20% to about 10% of Nvidia’s revenues and is currently expected to approach zero, and does not foresee a turning point anytime soon.
The $5.5 billion amortization is related to H20 inventory and purchase commitments. These low-capacity tips assume that they may not be able to find a home with customers in the developed market.
Conclusion: We are reducing our fair value estimates for Widemote Nvidia from $130 to $125, reducing revenue estimates to exclude China now and in the future. It holds a very high rating of uncertainty. Stocks seem to be undervalued to us as tariff concerns are likely weighing stock prices.
We will cut our July quarter revenue estimates by 10%, moving our existing growth rates forward on a lower revenue basis. Partially offsetting these reductions is an increase in long-term revenue estimates as we remain optimistic about building AI in developed markets. Terif and geopolitical tensions remain short-term and long-term concerns for NVIDIA and other chipmakers, but the future of AI expansion is also unclear. These factors, among other things, support a very high uncertainty assessment. China is just one of many moving works.
Appearance: We hope to gain more insight into these restrictions, along with the overall state of tariffs and AI spending during Nvidia’s revenue calls in late May. In the meantime, we doubt that companies are slowing down their AI investments.
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