Good News for Nvidia Investors

The artificial intelligence (AI) chip giant Nvidia (NASDAQ: NVDA) just reported a strong quarter of earnings and guided for higher revenue in the current quarter than Wall Street analysts had been modeling.

That's with management excluding any potential revenue from China, which has previously been a significant market for Nvidia. Geopolitical tensions between the U.S. and China, including tariffs and chip export curbs imposed by the U.S. government, have stalled the business in the country, which could be a material contributor to overall revenue if it gets back on track.

While U.S.-China trade relations are far from settled, Nvidia investors recently got some good news on this front.

White House potentially softening on Nvidia export curbs

Recently, Bloomberg, along with other major outlets such as Axios, reported that the White House is urging Congress to vote against a bill that would further restrict Nvidia's chip exports to China.

Image source: Nvidia.

The Guaranteeing Access and Innovation for National Artificial Intelligence Act (GAIN AI Act) would require U.S. chip companies, such as Nvidia, to prioritize U.S. sales for graphics processing units (GPUs) before being able to sell them abroad to businesses in China. According to Bloomberg, the law is written in a way that would make it difficult for Nvidia to sell its most innovative chips to China.

Nvidia has publicly called the law unnecessary. "We never deprive American customers in order to serve the rest of the world ... In trying to solve a problem that does not exist, the proposed bill would restrict competition worldwide in any industry that uses mainstream computing chips," a Nvidia spokesperson said back in September.

Restricting China's access to Nvidia's most advanced chips has garnered somewhat bipartisan support, and President Joe Biden's administration also took steps in this direction. Nvidia's CEO Jensen Huang has previously argued that doing so will only hurt U.S. chipmakers' competitive advantage and open the door for China to catch up.

President Donald Trump and the White House have been back and forth on Nvidia and China. Earlier this year, the administration required Nvidia to obtain an export license to sell certain chips to China, forcing the company to take a $5.5 billion charge.

However, since then, Huang has become more active in Washington and has lobbied Trump to roll back some of the restrictions. Several months ago, it looked as though Nvidia would be able to sell a range of its chips to China if it gave the government a portion of the proceeds.

The recent media reports are good news for Nvidia, as they suggest the administration is continuing to soften its stance regarding Nvidia's chip sales to China. The bill was initially part of the National Defense Authorization Act (NDAA) as an amendment, but now a group of senators has introduced it as a separate bill, so there will be a reconciliation process at some point.

Opening China would be huge for Nvidia

As I mentioned earlier, Nvidia is not incorporating China sales into its revenue outlook for the current quarter. Meanwhile, Nvidia's CFO Colette Kress noted on the company's recent earnings call that "sizable purchase orders never materialized in the quarter due to geopolitical issues and the increasingly competitive market in China." Yet the company still beat earnings estimates and guided for higher revenue in the current quarter than analysts modeled.

At this point, I don't think Wall Street will factor in any China sales until there is more clarity on the geopolitical front. But if this market opens up, Nvidia is going to generate significantly higher revenue. Last quarter, Huang said he thinks the opportunity in China this year would have been $50 billion, a number he expects to grow by 50% next year.

In Nvidia's fiscal year 2026, which ends in late January, Wall Street analysts are projecting $208 billion in revenue, so China's contribution could significantly boost those estimates.

Now, it's unclear if and when Nvidia will be able to fully capitalize on the China opportunity, as there are other export restrictions beyond the GAIN AI Act. However, Trump carries considerable influence in Congress, so if Nvidia can persuade him to soften his stance on export curbs, the company will be off to a promising start in eventually reigniting sales in China.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.