NVIDIA Q126. China Restrictions Bring QoQ Growth Screeching To A Halt

but sovereign deals are piling up to compensate for China restrictions...

NVIDIA reported Q1FY26 revenues of $44.1 billion, up 69% YoY and up 12% QoQ. Leading the charge was their Data Center segment which racked up revenues of $39.1 billion, up 73% YoY and up 10% QoQ..

This marked NVIDIA’s tenth successive quarter of sequential growth, a remarkable achievement given the fact that they were unable to ship $2.5 billion of China-related H20 revenue during the quarter, details from the CFO transcript here.

On April 9, 2025, we were informed by the U.S. government that a license is required for exports of our H20 products into the China market. As a result of these new requirements, we incurred a $4.5 billion charge in the first quarter of fiscal 2026 associated with H20 excess inventory and purchase obligations as the demand for H20 diminished. The $4.5 billion charge was less than what we initially anticipated as we were able to re-use certain materials. Sales of our H20 products were $4.6 billion for the first quarter of fiscal 2026 prior to the new export licensing requirements. We were unable to ship an additional $2.5 billion of H20 revenue in the first quarter.

That $4.5 billion charge showed up in the gross margin, which at 60.5%, was down 12.5 pts QoQ and down 17.9 pts YoY:

GAAP and non-GAAP gross margins for the first quarter decreased from a year ago and sequentially, primarily due to a $4.5 billion charge associated with H20 excess inventory and purchase obligations and the initial ramp of more sophisticated systems within Data Center.

Looking ahead, NVIDIA forecasted current quarter revenues of $45.0 billion, marginally up QoQ and weighed down by the loss of around $8 billion in previously anticipated H20 revenues

Revenue is expected to be $45.0 billion, plus or minus 2%. This outlook reflects a loss in H20 revenue of approximately $8.0 billion due to the recent export control limitations.

Thus comes to an end NVIDIA’s ten quarter long era of extraordinary sequential growth, at least for now. In a break with the company’s usual earnings call protocol, CEO Jensen Huang addressed this situation in a series of prepared remarks prior to the Q&A segment. In a balancing act which he is now obliged to perform on an almost daily basis, he lambasted the US Administration’s restrictions on NVIDIA’s sales to China while simultaneously praising the US President’s vision in other regards. Let’s dig in to what he had to say…