The sixth seed, who reached the last 16 at a fifth consecutive ATP Masters 1000 event, was beaten at the Madrid Open by Lorenzo Musetti in 83 minutes, 6-4 6-2.
After losing their first clash at the Australian Open in 2022, Musetti, the 10th seed, has won the three in a row and will next take on Canadian lucky loser Gabriel Diallo, who saw off Bulgaria's 15th seed Grigor Dimitrov, 5-7 7-6 (9-7) 6-4.
The Spanish-born Australian No.1 was broken in the opening game and two more times in the second set to crash out and now turn his attention to Rome.
Musetti, the 23-year-old from Tuscany, has ensured he will enter the top 10 in the rankings for the first time in his career next week, and become the sixth Italian male since 1973 to do so.
"I'm not surprised [to be in the quarter-finals], I'm surprised with myself," said Musetti, the two-time ATP Tour champion still pursuing his maiden Masters 1000 trophy.
"After Monte-Carlo, something changed in myself, a positive click forward. That's something I have been waiting for for a long time. I feel more secure on what I have to do on the court.
"Of course I can lose, but I have the attitude and mentality of a Top 10 right now, so I'm really happy about that."
Elsewhere on Wednesday, British No.1 Jack Draper cruised into the quarters with a straight-sets win over American Tommy Paul.
Draper took full advantage of an error-strewn display from his opponent to secure a 6-2 6-2 victory in just 67 minutes.
The fifth seed, who is the highest seed left in the tournament following the exits of Alexander Zverev and Taylor Fritz on Tuesday, will face Matteo Arnaldi in the last eight.
The Italian scored a 6-3 7-5 win over 16th seed Frances Tiafoe.
With PA.
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