• Nvidia's near-term sales guidance is expected to be pressured by a new U.S. policy requiring the company to pay 15% of its China-related revenue to the U.S. government.
  • Morgan Stanley analyst Joe Moore projects October sales of $52.5 billion, a more conservative figure than some street estimates of $55 billion, citing uncertainty around Chinese demand.
  • With China historically representing approximately 13% of Nvidia's total revenue, the company's outlook for the region will be a critical determinant of its overall financial performance.

Nvidia Corp.’s highly anticipated financial outlook is facing headwinds from conservative guidance on its sales in China, according to a note from Morgan Stanley. The pressure stems from a new financial arrangement with the U.S. government that has introduced significant uncertainty into one of the chipmaker’s key markets.

Under the terms of a recent deal, Nvidia can resume some AI chip sales to China but must pay 15% of the revenue generated from those sales to the U.S. government. This effectively creates a tax on its business in the region, compressing margins and making forecasting exceptionally difficult. The company’s new export-compliant H20 GPU is central to these resumed shipments.

“We are modeling $52.5 billion for the October quarter, which is below some of the more bullish $55 billion estimates,” wrote Morgan Stanley analyst Joe Moore, who rates the stock overweight. He noted that while demand remains robust, “billions depend on China,” and the new economic burden of the revenue-sharing agreement is likely to lead management to issue a more measured forecast.

The situation underscores the complex intersection of global commerce and national security. The U.S. has frequently adjusted its export controls on advanced semiconductors, with the Biden and Trump administrations both leveraging them for geopolitical aims. This latest policy, however, represents a novel approach by trading a portion of the revenue for market access, a move that has drawn criticism from some in Congress who argue it may sideline the original national security justifications.

Nvidia did not immediately respond to a request for comment on its guidance strategy. The company’s performance has been a bellwether for the AI boom, with its data center revenue soaring on demand for its powerful GPUs. However, its exposure to China’s market, which accounted for roughly 13% of its total revenue, makes it particularly vulnerable to shifts in trade policy and demand in the region.

The unpredictability of both U.S. policy and Chinese purchasing patterns has made accurate forecasting a challenge. Previous cycles of restrictions and temporary waivers have created a volatile environment for the entire semiconductor sector. For Nvidia, the key question for investors will be how much the new 15% revenue share and underlying demand will ultimately impact its bottom line.