Data centres drive Nvidia’s $44 billion revenue despite setback from China export restrictions

Nvidia’s first-quarter earnings for fiscal year 2026 have shattered records, with the company posting a remarkable 69 per cent year-on-year revenue growth to $44.1 billion. The impressive performance was largely driven by a booming data centre business, which saw a 73 per cent rise in sales compared to the same quarter last year.

However, the quarter was not without its challenges, as Nvidia incurred a significant $4.5 billion charge due to the export restrictions on its H20 products for the China market.

The standout performer in Nvidia’s earnings report was its data centre division, which recorded a massive $39.1 billion in revenue, representing 88 per cent of the company's total revenue. The demand for Nvidia’s artificial intelligence (AI) chips, especially for large cloud providers and AI supercomputing, continues to surge.

The company also announced that Microsoft has deployed tens of thousands of Nvidia's Blackwell GPUs, with plans to increase that number to hundreds of thousands, thanks to their partnership with OpenAI.

Nvidia’s AI infrastructure products, including the breakthrough Blackwell NVL72 AI supercomputer, have seen explosive growth. “AI inference token generation has surged tenfold in just one year,” said Nvidia CEO Jensen Huang during the company’s earnings call.

As AI agents become more mainstream, Huang emphasised that the demand for AI computing will continue to accelerate, positioning Nvidia at the centre of this transformative technology shift. “Countries around the world are recognising AI as essential infrastructure—just like electricity and the internet,” he added.

Despite the soaring demand for Nvidia’s cutting-edge AI chips, the company was hit with a significant setback during the quarter. On April 9, 2025, the US government informed Nvidia that a licence would be required for the export of its H20 products to China.

This unexpected change in the trade policy forced Nvidia to absorb a $4.5 billion charge in the first quarter of the current fiscal year, related to excess inventory and purchase obligations. As a result, Nvidia was unable to ship an additional $2.5 billion in H2O-related sales.

These export restrictions have serious implications for Nvidia, with Huang stating that the $50 billion AI chip market in China is effectively closed to US industry. The firm’s H20 processor, which had previously been approved for export to China, had been a major contributor to Nvidia’s data centre business, and the export ban has effectively ended its Hopper data centre business in China.

Strong performance despite setbacks

Nvidia's first-quarter net income rose by 26 per cent, reaching $18.8 billion, or $0.76 per share, up from $14.9 billion in the previous year. On an adjusted basis, earnings per share (EPS) were $0.96, beating analysts’ expectations of $0.93.

In afterhours trading on Wall Street, Nvidia share price jumped as much as 6 per cent after the chip maker posted record-breaking revenue. Its stock climbed to $142.22 apiece on Nasdaq in afterhours trading, against previous close at $135.50.

The company's gross margin was reported at 60.5 per cent on a GAAP basis and 61.0 per cent on a non-GAAP basis. Excluding the $4.5 billion charge, non-GAAP gross margin would have been a staggering 71.3 per cent.

The company’s gaming division, which includes chips for 3D gaming, also showed strong growth, with revenue rising 42 per cent year-on-year to $3.8 billion. Notably, Nvidia’s chips now power the Nintendo Switch 2, a new console that integrates AI-powered DLSS technology for up to 4K gaming. Nvidia’s graphics technology, once primarily used for gaming, is now being utilised in AI applications, further highlighting the expanding reach of its chips.

In addition, Nvidia’s automotive and robotics business saw a 72 per cent increase in revenue, totalling $567 million. The division's growth was driven by increased demand for self-driving car chips and robotics software, including the company’s breakthrough in humanoid robotics.

Nvidia had also introduced its Isaac GR00T N1, the world’s first open humanoid robot foundation model, and announced plans to expand its role in robotics development.

Nvidia’s professional visualisation division, which provides chips for 3D design and AI-powered design workstations, reported a 19 per cent increase in revenue to $509 million.

Guidance and expansion plans

Looking ahead, Nvidia expects revenue for the second quarter of fiscal 2026 to be around $45 billion, give or take 2 per cent, with a substantial $8 billion in lost sales due to the H20 export restrictions. Despite the loss of the China market, Nvidia remains optimistic about the future of its AI infrastructure and the continued global demand for its products.

Gross margins are projected to be in the range of 71.8 per cent to 72.0 per cent, with Nvidia targeting mid-70 per cent margins later in the year as it continues to scale its AI offerings.

Nvidia is also focused on expanding its global presence. The company recently unveiled plans to build AI factories in the US and Saudi Arabia, as well as launching the Stargate UAE AI infrastructure cluster in Abu Dhabi.

The firm has also expanded partnerships with major tech giants such as Oracle, Google, and Microsoft, and its Blackwell cloud instances are now available on AWS, Google Cloud, Microsoft Azure, and Oracle Cloud Infrastructure.

While the export restrictions are a significant hurdle for Nvidia, the company remains well-positioned at the forefront of the AI revolution. As countries worldwide increasingly view AI as essential infrastructure, Nvidia’s leadership in AI computing, combined with its expanding global footprint, positions the company for continued success in the coming years.

In the meantime, Nvidia continues to focus on delivering innovative products and expanding its partnerships to meet the surging demand for AI chips and infrastructure, with eyes on the future growth of AI technologies across the globe.