Fed Symposium and retail earnings in the rear view, clear your calendars. Next week, Nvidia (NVDA) , the world's most valuable company, will report earnings and offer investors a glimpse into the state of the ‘AI boom.'
In recent days, AI trades have staggered amid worries of a “bubble” in the industry. It's a harsher reality today than it was last quarter, with high-flyers like Palantir (PLTR) down 15% from its August highs.
And peers such as Advanced Micro Devices (AMD) have already reported, teasing strong revenue and weaker profits. Nonetheless, there remains a path to land the earnings, assuming there are no surprises.
However, there is a big shadowy unknown lurking in the background of the biggest report of the season: China.
Nvidia's China Problem
Nvidia's China problem is that we don't know how big of a problem it might be, if at all.
Last fiscal year, Nvidia made $17.1 billion in revenue from selling to China, making it the company's fourth-largest market. That represented about 13% of its total sales for the year. This share declined in the latest quarter, but the company's total sales continued to rise.
Only, the concern is that Chinese sales aren't really 13% of the company. That's just the sales we know about.
Outside of the U.S., which represents the lion's share of Nvidia's sales, Singapore and Taiwan are #2 and #3 in sales by country. They represented $23.7 billion (18.1% of sales) and $20.6 billion (15.8%). However, Nvidia concedes that some of this might look misleading.
In a footnote of their latest quarterly filing, they acknowledge that, although Singapore represented 20% of its first quarter revenue, “customers use Singapore to centralize invoicing while our products are almost always shipped elsewhere.”
They go on to add that “over 99%” of that revenue was for U.S. based customers. However, sales to customers outside the U.S. surpassed 53% in their latest quarterly filing (up from 48% in the quarter last year.)
Who are these customers? Well, some analysts warn that it's actually just China in a trench coat.
Its presumed that much more than 13% of the company's sales are from Chinese firms. In fact, some analysts warn that up to a third of Nvidia's revenue might well be coming from China when accounting for indirect purchases. That's because firms might be employing indirection means to acquire chips in the face of aggressive chip sanctions and restrictions levied on the country by the U.S. government.
Given recent developments, that could be cause for alarm.
China Warns Its Tech Industry
A new deal between domestic chipmakers and the White House will see 15% of their revenues from Chinese sales paid to the Federal Government. Not withstanding the weirdness of the profit-sharing, it might not generate as much revenue as this administration believes.
That's because China has directed its tech giants to stop buying Nvidia's last-gen H20 chips. The controversy stems from an interview where U.S. Commerce Secretary Howard Lutnick said that, “We don't sell them our best stuff,” adding that, “You want to sell the Chinese enough that their developers get addicted to the American technology stack.”
It's hard to tell how Beijing will reduce its reliance on Nvidia; the country's own domestic chipmaking industry still is not producing AI chips of the same sophistication as Nvidia, AMD, and others. For those reasons, this might amount to a big bluff by Beijing. For all we know, Nvidia might even be able to start selling next-gen chips to China in the coming months (or an all-new chip for the Chinese market).
However, the threat of a slowdown in sales is an incalculable risk given the unknowns. We know exactly how China directly contributes to revenue and how that might be affected if they change their buying behaviors.
On the other hand, we don't know the true scale of its indirect buys. That could create some surprises if they are, indeed, large enough to affect the company's growth story.
Why Does It Matter?
That's not just a problem for Nvidia investors, but everybody. Nvidia is the largest component of the S&P 500, the most-tracked index in the country. Trillions of dollars in 401(K)s, IRAs, and brokerages are tracked to the value of the index.
That means that, in the event Nvidia stock does fall, the S&P 500 likely will be going down with it. As of Aug. 22, 2025, it represented 7.49% of the index, with a market capitalization of $4.35 trillion.
It also sits atop the tech-heavy Nasdaq 100 (14.19%) and sits #20 in the 30-strong, price-weighted Dow (2.4%). In the latter, it's the best-performing stock this year.
However, investors don't seem to care so far. Up 28.7% year-to-date, the company is outperforming the broader market. And aside from a few brief pullbacks, the stock has been up-and-up, no end in sight.
