Nvidia earnings: AI demand, China, and what else to watch for

By Arsheeya Bajwa

Aug 27 (Reuters) - AI chipmaker Nvidia NVDA.O, the dominating force behind the rally in the S&P 500 index .SPX since 2023, is set to report second-quarter earnings on Wednesday after U.S. market close. Wall Street is holding its breath, and will scour the company's commentary for signs of a slowdown.

Here is what to watch out for when the world's most valuable firm reports results:

1. While investors and analysts expect Nvidia to outperform market expectations on Wednesday, a key question is - by how much? After quarters of blazing triple-digit growth in 2024, the pace of Nvidia's revenue increases has slowed and the company is beating Wall Street estimates by smaller and smaller margins. For its second quarter ended July, the company is expected to report second-quarter revenue rose 53.2% to $46.02 billion, according to LSEG data, a far cry from the 122% growth rate it reported in the same period a year earlier. Gross margin - still eye-popping - is shrinking too.

2. Are concerns about the AI rally overblown? OpenAI CEO Sam Altman recently said investors were "overexcited about AI". Tech firms including Meta META.O and Microsoft MSFT.O - big buyers of Nvidia's chips - are spending liberally on their AI plans, and even if they are starting to see the green shoots of returns, the same cannot be said about most other companies. Nvidia's commentary about demand will either put investors at ease or prompt a selloff in AI-related shares.

3. Will China buy Nvidia chips? The chipmaker recently agreed to pay the U.S. federal government 15% of the sales it made in China in exchange for export licenses. But Beijing has cautioned domestic companies to limit purchases over security concerns. Reports have emerged that Nvidia has told some suppliers to suspend production of its China-special H20 chips. Commentary from Nvidia's management on the potential for selling to China will be important for gauging future demand.

4. The company's product roadmap to address the China market is key, after U.S. President Donald Trump indicated he might allow Nvidia to sell a scaled-down version of its next-generation advanced Blackwell chip to Beijing. Reuters has reported Nvidia is developing a new AI chip for China based on the Blackwell architecture that will be more powerful than the H20 model it is currently allowed to sell there.

5. Supply of Nvidia's latest chips has fallen short of booming demand. A production ramp-up of its top-of-the-line Blackwell processors has proven to be challenging. Investors are watching out for commentary on how Nvidia's supply chains are powering up to deliver its sought-after processors.