Nvidia (NVDA) shares fell in early trading on Friday after Reuters reported that the company is delaying the launch of an AI chip that was designed to get around restrictions on AI chip exports to China.

Yahoo Finance Tech Editor Dan Howley discusses the report and what it means for Nvidia.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Well, Nvidia's earnings beats aren't wowing the Street the way that they once were. Now, despite what was considered a very solid fiscal third quarter report and outlook this week, shares fell in the aftermath. Concern over China was a big part of the reason.

Now, shares are down again today and it's all part of the same story. Yahoo Finance's Dan Howley is here with the details. And Dan, we're getting reports that maybe we could see a delay in terms of the chips that would be approved or OKed here for China going forward from NVIDIA.

DAN HOWLEY: That's right, Seana this is coming from Reuters. They're saying that the H20 chip that NVIDIA was putting together as, kind of, a solution to the export blocks that the US has put in place on high-end chips going to China would be delayed because of issues with server manufacturers getting that chip to, kind of, slot in. So that could be a potential issue and not something that was discussed during the recent earnings call.

Now, just to go back to that call, NVIDIA essentially said, look, we're looking at this China issue where the US put these export blocks into place. They have to get licenses for certain chips. They have to get sign-off for others. And then others that are even lower powered than those can just kind go through.

But according to Colette Kress, the CFO, the market in China, as well as other countries that are facing this export block, make up about 25% to 20% of NVIDIA's overall data center revenue in recent quarters. So if they don't get the chips that they're working on to, kind of, work around those blocks into place, then that could be a long-term problem for NVIDIA. Here's the thing, though, when they did have this earnings call, they didn't say how long they would be impacted. So you can take this as part of that story. As you said, yes, it seemingly is a new development, but it could just be a part of what they were discussing at that point without letting the idea that this chip, this H2O is having issues.

So overall, yes, shares of NVIDIA are down this morning. But in general, Wall Street analysts that I spoke to last week after the earnings were still very upbeat about NVIDIA. They were saying that, look, $1 billion potentially off data center revenue sure, but that would have still put them, if they were able to meet that ahead of expectations that Wall Street was looking for, for the next quarter or the current quarter that we're in.

So NVIDIA seemingly continuing to be the juggernaut that it is in the AI space and not slowing down. And during the conversations that I've been having with folks, they say it's the hyperscalers, the Microsofts, the Google's, yes, them, but also regional cloud service providers, governments, governmental institutions, everybody is trying to get their hands on NVIDIA chips. And so that's a very big deal.

Yes, it's an issue that China, one of the largest markets in the world, might be a problem for them right now. You got to imagine that NVIDIA is going to get a workaround going properly and that they'll be able to continue to sell into that market. But there are rivals like Huawei waiting in the wings that are hoping to snatch up some of that market share that NVIDIA has there. So they're going to have to work quickly.

BRAD SMITH: This is a company that had just reported earnings, Dan. So does this dramatically change or materially change at all what they had talked about in their earnings results and on the call, and the demand, and how they would be able to meet that internationally versus now with this impacting the H20 potentially, even the L2 and L20 chips as well?

DAN HOWLEY: I don't think so, right? Because Kress had basically said, you know, look, this is not something we-- we don't have a timeline for this yet. We don't know how much this is going to be impacting us, the bands at that point, not the issue with the chips that Reuters is reporting now.

But I think if six to 1/2 dozen the other at this point, right, they knew that they were going to be issues with China moving forward. This is just, kind of, another hiccup, but we didn't know when those issues would be resolved. So you know, I think the going thinking here would just remain the same, right, that they're going to continue to be able to sell elsewhere in the world, they're going to continue to be the juggernaut that they are. China is almost at this point a black box until they can get a better understanding of how they can sell into the country, as well as when these chips will eventually be available. But not news that investors want to hear necessarily, but I think it's still status quo as far as since the earnings report came out.