Nvidia, the leading AI chip manufacturer, has announced it will not pay a proposed 15% commission to the US government on AI chip sales to China until formal regulations are established. This decision comes in response to the Trump administration's plan to charge this commission in exchange for allowing Nvidia and AMD to sell AI chips in China.

Regulatory Uncertainty

CFO Colette Kress stated that Nvidia currently holds licenses to proceed with China sales and will not pay the commission without proper regulatory documentation. The plan, which remains in its early stages, lacks clear implementation guidelines, creating uncertainty for the company.

Potential Risks and Financial Impact

Nvidia has acknowledged that the commission plan could expose the company to litigation risks and competitive disadvantages. As a result of geopolitical uncertainties, the company has excluded up to $5.00 billion in potential China data center sales from its quarterly projections.

Previous Export Restrictions

The US government had previously blocked such sales before granting licenses earlier this month. This follows a $4.50 billion writedown on unsold H20 inventory that Nvidia recorded after export restrictions were tightened.

Future Outlook

Despite the challenges, CEO Jensen Huang expressed optimism about bringing the new Blackwell chip design to China, calling it a 'real possibility.' This indicates that Nvidia is still exploring ways to navigate the complex geopolitical landscape while maintaining its market presence in China.

The situation remains fluid, with Nvidia adopting a cautious approach as it awaits clear regulatory guidelines from the US government. The outcome of this proposed commission and its implementation could have significant implications for Nvidia's operations and the broader AI chip industry in the context of US-China trade relations.

Wall Street futures declined in early Thursday trading after Nvidia reported mixed results. Nasdaq futures fell over 100 points while S&P 500 futures dropped 25 points. Despite benchmark indices gaining for a second consecutive day on Wednesday, with the Dow Jones up nearly 300 points over two sessions, market sentiment remains cautious.

Nvidia's Q2 Earnings Results

Nvidia reported second quarter revenue of $13.51 billion, exceeding the $11.22 billion estimate, with earnings per share of $2.70 beating the $2.09 expectation. Despite the earnings beat, shares fell 3.10% in extended trading. The company guided for $16.00 billion revenue in the current quarter, above analyst projections of $12.61 billion.

Nvidia's guidance projects a 10th straight quarter of 50%-plus revenue growth, but it would be the slowest in these 10 quarters if achieved. The data center business, now the largest revenue source, generated $10.32 billion, surpassing the $7.69 billion estimate. Gaming revenue reached $2.49 billion, exceeding the $2.40 billion estimate.

Economic Data and Market Focus

Thursday's session will feature multiple data releases including:

• Q2 GDP revision
• Initial jobless claims
• Pending home sales data

Fed Governor Christopher Waller is scheduled to speak. Friday brings the Personal Consumption Expenditure inflation figures, with core PCE estimated to rise 2.90% year-on-year in July.

Oil prices declined in early Asia trading, while short-dated Treasuries climbed amid Federal Reserve policy easing expectations. The US Dollar index remains above 98.00.

Asian Market Response

Asian technology shares advanced as investors eagerly anticipated Nvidia's earnings report. The Asian tech sector saw a 0.60% increase, outperforming broader regional markets that remained relatively flat. Notable movements include:

• Chinese AI company Cambricon Technologies jumped 8.20% to reach record highs after reporting record profits.
• In Japan, Nikon shares surged 21.00%.

Currency Movements

The Chinese yuan strengthened to its highest level against the dollar since November, indicating positive sentiment in the Chinese market. However, investors remain cautious as they focus on key risks, including the implications of Nvidia's earnings report and upcoming inflation data.

Political and Trade Developments

Two significant developments are capturing market attention:

1. President Trump's move to dismiss Federal Reserve Governor Lisa Cook has raised concerns about the independence of the Federal Reserve.

2. The United States is set to impose 50.00% tariffs on select Indian goods. These tariffs, the highest in Asia, are being implemented as a response to India's purchases of Russian oil.

As markets digest these various factors, including Nvidia's mixed earnings report, investors will be closely watching for potential impacts on the tech sector performance and broader market sentiment.