Chip designer NVIDIA's shares sank by 4% in aftermarket trading today but then pared back the losses to 1.83% after the firm reported its fiscal second quarter earnings report. NVIDIA posted $46.7 billion in revenue and $1.05 in non-GAAP diluted earnings per share, both of which beat analyst estimates of $46.06 billion and $1.01. For its fiscal third quarter, the firm guided $54 billion in revenue, for a beat over the $53.14 billion that analysts had guided.
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For growth stocks like NVIDIA, investors are not only looking for an earnings beat but a beat with a wide margin. NVIDIA appeared to disappoint Wall Street on this front as its beat was one of the lowest in its several quarters. While the firm nevertheless continued to surpass expectations, as not only did it beat analyst revenue and EPS estimates, its data center revenue of $41.19 billion in its now bread-and-butter segment was anything but a solid beat. Analysts had expected NVIDIA to post roughly $41.29 billion in data center revenue, which meant that the latest figures were a miss at worse and in-line at best.
The key question which dominated media coverage ahead of the earning was NVIDIA's China exposure. The firm has had to struggle to sell its chips to China this year after the Trump administration's H20 AI GPU ban. However, as NVIDIA only started receiving H20 licenses in August, the firm was not expected to add any sizable revenue from China sales into its second quarter figures.
The lack of China-specific H20 revenue turned out to be correct as NVIDIA's CFO Collette Kress outlined in her remarks that the firm "benefited from a $180 million release of previously reserved H20 inventory related to the sale of approximately $650 million of H20 to an unrestricted customer outside of China. There were no H20 sales to China-based customers in the second quarter."
Yet, despite the beat and the Chinese exposure, Wall Street was in no mood to play. The stock dipped by 4% almost immediately after the earnings were released only to pare back its losses to 1.83% within moments. This brief reprieve was short lived as the shares were down by 2.73% at 4:36 p.m. Eastern Time.
Apart from its China woes, NVIDIA is also facing pressure from the AI industry due to the high prices of its GPUs. Investors are concerned that AI software firms are not seeing significant returns after buying NVIDIA's pricey GPUs, which creates worries about the future demand of the products. However, with the firm due to launch its Rubin GPUs soon, the bulls are certain that the new chips will deliver key AI performance upgrades such as reasoning and inferencing capabilities.
As for its current generate Blackwell GPU lineup, CFO Kress outlined that NVIDIA continued to "to ramp our Blackwell architecture, which grew 17% sequentially, including our newest architecture, Blackwell Ultra. We recognized Blackwell revenue across all customer categories, led by large cloud service providers, which represented approximately 50% of Data Center revenue."
Blackwell shipments and rumored delays were a key drag to the stock price earlier this year as high costs and delays weighed down NVIDIA's stock. Kress' comments appeared to hint that NVIDIA has achieve stable market penetration with its latest AI GPUs for a more than material representation in its data center business.
NVIDIA guided $54 billion in fiscal third quarter revenue which overshot analyst estimates of $53.13 billion. The firm also added $3.7 billion worth of inventory sequentially during the quarter "to support the ramp of Blackwell Ultra." However, NVIDIA's operating cash flow dropped by a strong 43.7% annually due to a high tax burden, wrote the CFO in her statement.
NVIDIA's board also approved $60 billion in share repurchases without expiration, and the firm was careful to note that it did not factor in any China H20 AI GPU sales in its Q3 guidance. The stock, however, continued to lose momentum, as it was down by 3.5% at 4:47 p.m. Eastern Time.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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