Nvidia stock bounced around this week as confusion about its ability to do business in China grew ahead of the tech giant's much-anticipated earnings report on Wednesday.
Nvidia joined a broad market rally on Friday, sparked by news of a possible interest rate cut. But shares had been sliding on new worries that AI hype was overdone and on a report that the tech giant was halting production of its H20 chip after Beijing asked local companies not to buy it. Nvidia stock gained 1.7% to close at 177.99. But the shares ended the week down 1.4%.
Confusion over Nvidia's future in China was the spotlight again ahead of the chipmaker's quarterly earnings report on Aug. 27.
Nvidia Chief Executive Jensen Huang said Friday that he was in talks with China over Beijing's reported security concerns over so-called backdoors, the New York Times reported. Huang reportedly is also talking to Beijing about selling more advanced chips to China, according to CNBC.
No 'Backdoors'
Reacting to the reported security weaknesses in Nvidia chips, the company said in a statement, "Cybersecurity is critically important to us. NVIDIA does not have 'backdoors' in our chips that would give anyone a remote way to access or control them. The market can use the H20 with confidence."
Nvidia came up with the H20 chip for the China market to comply with U.S. export restrictions. The chip is a less powerful version of Nvidia's main AI processors.
Nvidia also stressed that the U.S. and Chinese governments recognize that "the H20 is not a military product or for government infrastructure."
"China won't rely on American chips for government operations, just like the U.S. government would not rely on chips from China," the company said. However, allowing U.S. chips for beneficial commercial business use is good for everyone."
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The latest news underlined the confusion over Nvidia's China business.
The company announced in April that it was writing off $5.5 billion in inventory and purchase commitments as a result of the Trump trade policy.
But Nvidia announced in July that it was resuming H20 sales in China. The news sparked a rally in Nvidia stock. But the stock took a hit on the report of a possible bank, which followed new speculation of an AI bubble.
Clearly, there's still much uncertainty about Nvidia's China business, said Bernstein Research analyst Stacy Rasgon.
"I don't know if they're banning it or not, but there's demand," he told Investor's Business Daily. "There is demand for Nvidia parts. AI companies in China want those parts. If they say they can't use them, what are they supposed to buy?"
Nvidia Stock Earnings: 'No China In The Numbers'
In any case, the fuzziness of Nvidia's China business won't matter much for the semiconductor powerhouse's upcoming earnings report on Aug. 27. The reason is clear, he said, "There's no China in the numbers."
Citing a conversation with Nvidia Chief Financial Officer Colette Kress after the company announced in July the resumption of H20 sales. Rasgon told clients in a note that it was "too late to recover revenue" in Nvidia's fiscal second quarter.
Meanwhile, Nvidia stock also got spooked by yet another wave of speculation that the AI was getting overhyped. The sell-off was triggered by comments by OpenAI CEO Sam Altman who said investors are getting "overexcited" about AI.
Fears of an AI bubble were reinforced by news that Meta was freezing AI hiring.
Rasgon downplayed the AI bubble worries.
Referring to Meta's reported hiring freeze following a recruitment drive that reportedly involved massive signing bonuses, he quipped, "They just hired like 50 people at like hundreds of billions of dollars each right, right? OK. Yeah, maybe they've hired enough for now."
"Capex budgets are climbing," he added. "I've covered Nvidia for a long time. What's the chance that we get a digestion cycle? It's going to be 100%. But it's not now."
Wedbush analyst Dan Ives echoed the upbeat view of AI.
"We believe next week's Nvidia earnings is another positive catalyst that will further remind investors this is still only the bottom of the second inning in the nine-inning game around building out the AI Revolution over the coming years to enterprises/ consumers globally," he told clients in a note.
