Nvidia earnings beat Wall Street’s sky-high expectations, but the stock is falling because ‘there were no H20 sales to China-based customers’

Nino Paoli is a Dow Jones News Fund fellow at Fortune on the News desk.

Nvidia recorded no China sales revenue for H20 chips and just narrowly beat Wall Street estimates as the AI chipmaker reported quarterly earnings Wednesday. Tied up H20 chip inventory intended to be sold to China before U.S. intervention in April was sold elsewhere, the company said.

Revenue increased 56% from the same period a year ago to $46.74 billion, exceeding Wall Street’s projection of $46.52 billion, per data compiled

“Production of Blackwell Ultra is ramping at full speed, and demand is extraordinary,” CEO Jensen Huang said of the tech behemoth’s next-generation AI chip, which is used in data centers globally, in the earnings release. “The AI race is on, and Blackwell is the platform at its center.”

The top-line results received a lukewarm reaction from investors. Shares edged down over 3% to around the $175 mark in extended trading Wednesday evening.

“(The stock movements are) probably just an initial reaction to a so-so number,” Scott Bickley, advisory fellow at Info-Tech Research Group told Fortune before the earnings call. “Which is kind of insane that we’re viewing $46.7 billion in a quarter” as ‘so-so,’ he said.

The company’s automotive and robotics segment grew the most at 69% year-over-year. 

Nvidia has been navigating trade restrictions on H20 shipments to China since April, and the company said no H20 chip revenue to China was included in the second-quarter figure. The company estimated $2 billion to $5 billion in value of H20 chips could be shipped to China this quarter, and that some China buyers received licenses over the past few weeks for these transactions.

“Expectations were sky-high, but Nvidia exceeded them again,” Michael Smith, senior portfolio manager and head of the growth equity team at Allspring Global Investments told Fortune. Allspring owns in Nvidia in some of the funds. “Margins are rising as Blackwell ramps, China remains a massive untapped opportunity post-export controls, and a $60 billion buyback is an extra sweetener amid record free cash flow.”