Markets Shake As Nvidia's China Outlook Clouds Stellar Earnings

Asian equity markets wavered sharply as Nvidia's impressive financial performance clashed with deepening concerns over its operations in China, exposing investor nerves across the region.

Nvidia delivered a commanding second‐quarter performance, posting a 56 per cent year‐on‐year revenue surge to approximately $46.7 billion and a 59 per cent rise in net income to around $26.4 billion. Despite exceeding expectations and charting strong growth, its shares slid about 3 per cent in after‐hours trading, as the forecast for the coming quarter omitted any anticipated sales of its H20 AI chip to China.

The omission reflects escalating geopolitical headwinds. Despite securing a deal to share 15 per cent of H20 chip revenue from Chinese sales with the U. S. government for export approval, Nvidia revealed that Beijing has apparently instructed firms not to purchase the H20, citing downgraded specifications and security concerns. That uncertainty prompted investors to scale back expectations, even though Nvidia projects third‐quarter revenue of $54 billion-above analyst forecasts but excluding any H20 sales to China, potentially leaving $2–5 billion of upside untapped.

The fallout rippled across Asian markets. The MSCI Asia‐Pacific index ex‐Japan swung between gains and losses, ending down 0.2 per cent amid pressure from the chip sector, particularly in Korea and Taiwan-markets seen as the“cleanest beta” to Nvidia. South Korea's markets held firm, buoyed by a steady 2.5 per cent interest rate from its central bank, while Japan's Nikkei maintained mild gains even as trade negotiations hit a snag following the cancellation of a high‐level U. S. visit. Hong Kong's Hang Seng Index, however, lost ground-down 1 per cent-led by Meituan's sharp drop after its profit fell short of forecasts.

Investor sentiment was further clouded by concerns over the U. S. Federal Reserve's independence. The dollar weakened as markets priced in a high probability of a September rate cut amid growing political pressure and the dismissal of a Fed governor by U. S. leadership.

Despite the lacklustre market reaction, optimism persists about Nvidia's long‐term trajectory. CEO Jensen Huang highlighted robust global demand for AI infrastructure, including momentum behind the“Vera Rubin” processor and the full‐scale ramp‐up of its Blackwell Ultra platform. Analysts remain broadly supportive; Jefferies noted persistent sell‐outs across Hopper and Blackwell products, suggesting ample runway provided geopolitical tensions ease. Others pointed out resilience in profitability and margins even in the absence of China‐based H20 revenue.

Nvidia's valuation-now over $4 trillion, the highest globally-reinforces its significance as a bellwether in the AI and semiconductor sectors. The company accounts for roughly 8 per cent of the S&P 500, amplifying the impact of any market movement tied to its performance.

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