Nvidia is in the middle of the US trade war with China, and as the conflict progresses, it is finding its position in China’s huge market increasingly troubled.
Earlier this year, US government restrictions on selling artificial intelligence chips to China prevented Nvidia from selling its H20 chip within China, forcing the company to take a $4.5 billion write-off for unsold chip inventory in the fiscal first quarter.
In August, Nvidia made a deal with the US government to remove restrictions on selling its less advanced artificial intelligence chips to China. The company agreed to pay the government 15% of its revenues from chip sales to China.
Following this export tax deal, Chinese authorities have warned local companies against using foreign AI chips, with a special focus on Nvidia’s H20 chips.
The problems for Nvidia don’t end there. Trade negotiations are ongoing, and China has an ace up its sleeve.
On August 27, Nvidia NVDA reported its results for Q2 of fiscal 2026.
Jensen Huang, founder and CEO of NVIDIA, said that Blackwell Ultra manufacturing is picking up at full speed and that “demand is extraordinary.”
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No H20 chips were sold to China-based customers in the second quarter. The company stated that it benefited from a $180 million release of previously reserved H20 inventory and approximately $650 million in unrestricted H20 sales to a customer outside of China.
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Revenue grew 56% to $46.7 billion year-over-year
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Gross margin of 72.4% compared to 75.1% in Q2 FY 2025
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Gross profit of $33.9 billion, an increase of 50% YoY
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Net income of $26.4 billion, an increase of 59% YoY
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Diluted earnings per share of $1.08 compared to $0.67 in Q2 FY 2025
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Revenue is expected to be $54.0 billion, plus or minus 2%.
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Gross margin is expected to be 73.3% plus or minus 50 basis points.
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Operating expenses are expected to be approximately $5.9 billion
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The company has not assumed any H20 shipments to China in the outlook.
Beijing launched an investigation in December 2024 into Nvidia’s acquisition of Mellanox. China approved the acquisition in 2020, on the condition that Nvidia not discriminate against Chinese companies.
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China’s State Administration for Market Regulation (SAMR) conducted a preliminary investigation and found that Nvidia was in violation of antitrust regulations as it didn’t fully comply with the conditions set in the acquisition of Mellanox.
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The regulator will investigate the company further, and it didn’t define what kind of amendments it would require from Nvidia.
SAMR’s announcement coincides with US and Chinese officials trade negotiations in Madrid. According to the Financial Times sources, SAMR reached its conclusion weeks before the announcement, and timed the release of the investigation report to give China better leverage in the trade talks.
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Nvidia needs these trade talks to go well, as the stock will likely lose value if it gets fined by SAMR.
The company’s Q2 data center revenue missed analyst estimates for the second straight quarter, which has affected the stock’s recent performance. Citi analyst Atif Malik recently lowered his price target on Nvidia to $200 from $210 while maintaining a buy rating.
“Malik said Nvidia’s dominance in AI chips is coming under pressure as rivals push their own custom processors, pointing to Broadcom (AVGO), which recently reported strong quarterly results and disclosed a $10 billion order for its XPUs, the company’s next-generation custom accelerators,” writes Silin Chen for TheStreet.
Let’s hope the trade talks go well, for they will have a huge impact, as China is also launching an investigation into antidumping, regarding a type of semiconductor made by US companies such as Texas Instruments, reported Bloomberg.
This story was originally reported by TheStreet on Sep 16, 2025, where it first appeared in the Technology Business News section. Add TheStreet as a Preferred Source by clicking here.